UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


J,    '      <M 


SELECTION  OF  CASES 


ON 


PRIVATE  CORPORATIONS 


BY 

JEREMIAH  SMITH, 

n\ 

STORY   PROFESSOK  OF  LAW  IN  HARVARD   UNIVERSITY. 


IN  TWO  VOLUMES. 
VOL.    I. 


CAMBRIDGE: 

THE  HARVARD  LAW  REVIEW  PUBLISHING  ASSOCIATION. 

1897. 


\ 

1*57 


Copyright,  1896, 
BY  JEREMIAH  SMITH. 


JOHM  WILSON  AND  SON,  CAMBRIDGE,  U.  S.  A. 


PREFACE. 


WHEN  Professor  Gumming  was  preparing  his  "  Cases 
on  Private  Corporations,"  in  1892,  the  list  of  cases  then 
in  use  on  that  subject  at  the  Harvard  Law  School  was 
placed  at  his  service,  with  the  understanding  that  the 
same  list  was  liable  to  be  used  by  me,  at  any  time 
after  one  year,  in  preparing  a  selection  of  cases  on 
the  same  subject.  Such  use  has  now  been  made  of 
that  list.  This  explains  the  similarity  between  Professor 
Cumming's  book  and  the  present  work,  in  regard  to 
the  cases  selected  on  some  topics. 

JEREMIAH  SMITH. 

APRIL,  1897. 


TABLE  OF  CONTENTS. 


VOLUME  I. 


PAGE 

TABLE  OF  SELECTED  CASES      ix 


CHAPTER   I. 
DEFINITION  OF  CORPORATION  .    .    .     .    . 


CHAPTER  II. 
DISTINCTION  BETWEEN  CORPORATION  AND  STOCKHOLDERS  ....      23 

CHAPTER  III. 

CREATION  OF  CORPORATION 65 

SECTION      I.     By  what  Authority 65 

SECTION    II.     Acceptance  of  Charter 60 

SECTION  III.     Conditions  Precedent  to  Incorporation  De  Jure   .     .  74 
SECTION  IV.     Corporations    De    Facto.       Associations   which    are 
neither   Corporations  De  Jure   nor  Corporations 

De  Facto 87 

CHAPTER  IV. 
INTERPRETATION  OF  CHARTERS 148 

CHAPTER  V. 

POWERS  USUALLY  IMPLIED 179 

SECTION      I.  Power  to  acquire  Property  by  Purchase      ....  179 

SECTION    II.     Power  to  acquire  Property  by  Devise 185 

SECTION  III.  Power  to  Alienate.     Power  to  Mortgage     .     .     .     .  188 

SECTION  IV.  Power  to  borrow  Money.    Power  to  issue  Negotiable 

Notes 196 

SECTION     V.     Power  to  make  By-Laws 209 


vi  TABLE   OF  CONTENTS. 

CHAPTER  VI. 

PACE 

MODE  OF  CONTRACTING  AND  OF  APPOINTING  AGENTS 210 

CHAPTER  VII. 
POWER  OF  MAJORITY 224 

CHAPTER  Vin. 

STOCKHOLDER'S  RIGHT  TO  BRING  SUIT  IN  REFERENCE  TO  CORPORATE 
MANAGEMENT,  OR  TO  PROTECT  CORPORATE  INTERESTS.  STOCK- 
HOLDER'S RIGHT  TO  INSPECT  CORPORATE  RECORDS 248 

CHAPTER  IX. 
DIVIDENDS.     PREFERRED  STOCK 322 

CHAPTER  X. 

RIGHT  OF  CREDITOR  OF  CORPORATION  TO  BRING  SUIT  IN  REFERENCE 

TO  CORPORATE  MANAGEMENT 352 

CHAPTER  XI. 

FORFEITURE  OF  CHARTER  —  now  ENFORCED.  SUIT  BY  STATE  TO  RE- 
STRAIN ULTRA  VIBES  ACTS 358 

CHAPTER  XII. 
LIABILITY  OF  CORPORATION  FOR  TORTS 380 

CHAPTER  XIII. 
LIABILITY  OF  CORPORATION  FOR  CRIMES  AND  CONTEMPTS  ....    440 

CHAPTER  XIV. 

EFFECT  OF  ULTRA  Vines  TRANSACTIONS 451 

SECTION  I.  Transaction  within  the  Apparent  Authority  of  the 
Corporation,  and  rendered  Ultra  Vires  only  by 
Reason  of  the  Purpose  entertained  by  the  Corpo- 
ration, or  by  other  Extrinsic  Facts 451 

SECTION       II.     Executed  Transfers  to,  or  from,  Corporation  in 

Excess  of  Charter  Authority 453 

SECTION  III.  Ultra  Virex  Lease.  Remedies  in  Case  of  Repudi- 
ation by  either  Party  before  the  Expiration  of 
the  Term 465 


TABLE   OF   CONTEXTS. 


Vll 


PAGB 

SECTION  IV.  Bequest  to  Corporation  in  Excess  of  Charter  Au- 
thority   476 

SECTION  V.  Suits  for  Specific  Performance  of  Contracts  which 
are  in  Excess  of  Charter  Authority ;  or  for  Dec- 
larations of  Trust  for  Purposes  in  Excess  of  Char- 
ter Authority 493 

SECTION  VI.  Ultra  Vires  Contract  remaining  wholly  Executory 
on  both  Sides,  or  Executed  only  in  Part  by  either 
Side.  Action  for  Breach,  or  for  Cancellation  .  497 

SECTION  VII.  Suit  by  Corporation  on  an  Ultra  Vires  Contract 

which  has  been  fully  performed  on  its  Part  .  507 

SECTION  VIII.  Suit  against  Corporation  on  an  Ultra  Vires  Contract 
which  has  been  fully  performed  on  the  Plaintiff's 
Part 522 

SECTION  IX.  Obligation  to  restore  what  was  Received  under  a 
Contract  which  has  subsequently  been  Repudi- 
ated on  the  Ground  of  Ultra  Vires 576 

SECTION  X.  Liability  of  Corporator  where  there  is  Crime,  Tort, 
or  Ultra  Vires  Contract  on  the  Part  of  the  Cor- 
poration   592 


VOLUME  IT. 


CHAPTER  XV. 

DISSOLUTION  OTHER  THAN  BY  FORFEITURE  OR  BY  RESERVED  LEGIS- 
LATIVE POWER  OF  REPEAL 604 

CHAPTER  XVI. 
DISTRIBUTION  OF  ASSETS  IN  CASE  OF  DISSOLUTION 608 

.CHAPTER  XVII. 

LEGISLATIVE  CONTROL 622 

SECTION  I.  How  far  Repeal,  Change  of  Charter,  or  Confiscation 
is  prohibited  by  the  U.  S.  Constitution,  or  by  State 
Constitutions  .  ...  ^  .......  622 

SECTION  II.  Extent  of  Police  Power,  where  Charter  does  not  con- 
tain any  Express  Reservation  of  Power  ....  681 

SECTION  III.     Reserved  Power  in  Legislature  to  repeal  Charter     .     707 

SECTION  IV.  Reserved  Power  in  Legislature  to  alter  or  amend 

Charter 740 

CHAPTER  XVIII. 

RIGHT  OF  CORPORATE  CRF.DITOR  TO  COMPEL  SHAREHOLDER  TO  PAY 
THE  FULL  PAR  VALUE  OF  HIS  STOCK.  RIGHTS  OF  SHAREHOLD- 
ERS INTER  SESE  TO  COMPEL  SUCH  PAYMENT 812 


viii  TABLE   OF   CONTENTS. 

CHAPTER   XIX. 

PAQB 

STATUTORY  LIABILITY  OF  SHAREHOLDER  TO  CREDITOR  OF  CORPO- 
RATION,  OVER    AND  ABOVE    SHAREHOLDER'S    LIABILITY   TO   PAY 

IN  FULL  THE  AMOUNT  SUBSCRIBED  BY  HIM  FOR  STOCK   .     .     .      875 

CHAPTER  XX. 

POWER  OF  CORPORATION  TO  BECOME  A  MEMBER  OF  A  COPARTNER- 
SHIP OR  TRUST 935 

CHAPTER  XXI. 

POWER  OF  CORPORATION  TO  OWN  SHARES  IN  ANOTHER  CORPORA- 
TION  952 

CHAPTER  XXII. 
POWER  OF  CORPORATION  TO  PURCHASE  ITS  OWN  SHARES  ....      974 

CHAPTER  XXIII. 

POWER  OF  AN  INSOLVENT  CORPORATION  TO  PREFER  PARTICULAR 

CREDITORS 990 

CHAPTER  XXIV. 
VOTING  RIGHTS  OF  SHAREHOLDERS 1019 

CHAPTER  XXV. 
TRANSFER  OF  SHARES 1065 


APPENDIX •. 1143 


TABLE  OF  SELECTED  CASES. 


PAGE 

Adams  and  Westlake  Co.  v.  Deyette 995 

American  Nat.  Bank  v.  American  Wood  Paper  Co 221 

American  Union  Telegraph  Co.  v.  Union  Pacific  R.  Co 469 

Andover,  Trustees  of  Free  Schools  in  v.  Flint 876 

Anonymous  (12  Modern,  559) 440 

Ashbury  Railway  Carriage  and  Iron  Co.  v.  Riche 557 

Ashton  v.  Burbank 229 

Ashuelot  R.  R.  Co.  v.  Elliott 768 

Attorney-General  v.  Tudor  Ice  Co 381 

Atwool  v.  Merryweather 273 

Aurora,  &c.  Society  v.  Paddock 189 

Bacon  v.  Robertson 618 

Bahia  &  San  Francisco  R.  Co.,  In  re 1092 

Bank,  American  Nat.  v.  American  Wood  Paper  Co 221 

Bank,  Continental  Nat.  v.  Eliot  Nat.  Bank 1136 

Bank,  First  National,  of  Deadwood  v.  Gustin,  &c.  Mining  Co.     .     .     .  835 

Bank,  Monument  Nat'l  v.  Globe  Works 451 

Bank,  Narragansett  v.  Atlantic  Silk  Co 138 

Bank,  Nassau  v.  Jones 497 

Bank,  Royal,  of  Liverpool  v.  Grand  Junction  R.  &  D.  Co 219 

Bank,  Stockton  Savings  ».  Staples 179 

Bank,  Union  v.  Jacobs 200 

Bank  of  Columbia  v.  Patterson 213 

Bank  of  Michigan  v.  Niles 493 

Bank  of  U.  S.  v.  Dandridge 211 

Bank  of  U.  S.  v.  Deveaux 58 

Baroness  Wenlock  v.  River  Dee  Co 577 

Bateman  v.  Mid-Wales  R.  Co 197 

Bates  ».  Coronado  Beach  Co 941 

Beatty  v.  N.  W.  Transportation  Co 1057 

Beer  Co.,  Boston  v.  Massachusetts 692 

Binghamton  Bridge 170 

[Bishop  on  Written  Law.     Extract] 447 

Bissell  v.  Michigan,  &c.  R.  Cos 522 

Boatmen's  Ins.  &  T.  Co.  w.  Able 1071 

Bolander  v.  Stevens 9 

Bond  v.  Terrell,  &c.  Co 507 


X  TABLE  OF  SELECTED  CASES. 

PAOB 

Boston  Beer  Co.  r.  Massachusetts 692 

Boston  Glass  Manufactory  v.  Langdon 604 

Boston  Music  Hall  Association  v.  Cory 1120 

Bostwiek  v.  Chapman       1032 

Boyce  r.  Trustees  of  Towsontown,  &c 146 

Bradbury  r.  Boston  Canoe  Club 196 

Bradley  v.  Reppell 127 

Bridge,  Charles  River  v.  Warren  Bridge 157 

Bridge  Co.,  Chenango  v.  Binghamton  Bridge  Co 170 

Bridge  Co.,  Franklin  v.  Wood 65 

Bridge  Co.,  N.  Y.  &  L.  I.  v.  Smith 367 

Bridge,  The  Binghamton 170 

Bright  p.  Lord 344 

Broderip  r.  Salomon 81,  1143 

Bronson  P.  LaCrosse,  &c.  R.  Co 278 

Brooklyn  Steam  Transit  Co.  v.  City  of  Brooklyn 365 

Brown  v.  Eastern  Slate  Co 891 

Brundred  v.  Rice 592 

Brunswick,  &c.  Co.  v.  United,  &c.  Co 514 

Buffalo  &  Allegany  R.  Co.  v.  Cary 89 

Buffalo  &  X.  Y.  C.  R.  Co.  r.  Dudley 742 

Building  Society,  Guardian  P.  B.,  In  re 585 

Building  Society,  National,  In  re 582 

Bundy  v.  Ophir  Iron  Co 31 

Barges  &  Stock's  Case 576 

Burkett  c.  Plankinton 904 

Hurt  r.  British,  &c.  Association 293 

I'.ushnell  v.  Consolidated,  &c.  Co 112 

Button  v.  Hoffman 33 

Callender  v.  Painesvillc  &  Hudson  Railroad  Co 144 

Carr  r.  Iglehart 875 

Case  v.  Kelly 495 

Catlin  »>.  Eagle  Bank 990 

Central  R.  R.  &  Banking  Co.  v.  Smith 435 

Charles  River  Bridge  Co.  v.  Warren  Bridge 157 

Chenango  Bridge  Co.  v.  Binghamton  Bridge  Co 170 

Cheraw  &  Chester  R.  Co.  v.  White 79 

Chestnut  Hill,  &c.  Turnpike  Co.  v.  Rutter 391 

Chicago,  Burlington,  &  Quincy  R.  R.  Co.  v.  Towa 695 

Childs  v.  Bank  of  State  of  Missouri 400 

City  of  Detroit  c.  Detroit  &  Howell  Plank  Road  Co 791 

Clapp  r.  Peterson 986 

Cleveland  City  Forge  Iron  Co.  p.  Taylor  Bros.  Iron- Works  Co.    .     .     .  356 

Cochran  v.  Wiechers 901 

Coit  i?.  Gold  Amalgamating  Co 839 

Columbia,  Bank  of  v.  Patterson 213 

Commonwealth  v.  Bringhurst 1024 

Commonwealth  v.  Crompton 1073 

Commonwealth  v.  Essex  Co 745 

Commonwealth  ».  Phoenix  Iron  Co 248 

Commonwealth  v  Smith 190 


TABLE  OF  SELECTED  CASES.  XI 

PAOK 

Commonwealth  v.  Union,  &c.  Ins.  Co 369 

Continental  Nat.  Bank  v.  Eliot  Nat.  Bank .,1136 

Carrie's  Case       .     .     '. 817 

Dartmouth  College  i>.  Woodward 622 

Davenport  r.  Dows 280 

Davidson  College  v.  Chambers'  Executors 476 

Davis  v.  Old  Colony  R.  Co 564 

Davis  v.  Smith  American  Organ  Co 561 

Dead  wood,  First  Nat'l  Bank  of  r.  Gustin,  &c.  Mining  Co 835 

Denver  Fire  Ins.  Co.  v.  McClelland 568 

Derrickson  v.  Smith 914 

Detroit,  City  of  v.  Detroit  &  Howell  Plank  Road  Co 791 

Diversey  v.  Smith 904 

Dodge  v.  Woolsey 257 

Dow  v.  Northern  Railroad 795 

Downing  v.  Mt.  Washington  R.  Co 148 

Dudley  v.  Kentucky  High  School 224 

Duncuft  v.  Albrecht 1065 

Dupee  v.  Boston  Water  Power  Co 974 

Durfee  v.  Old  Colony  &  Fall  River  R.  R.  Co 750 

Durkee  v.  People  ex  rd.  Askren 1018 

Eagle  Ins.  Co.  v.  Ohio 701 

East  Birmingham  Land  Co.  v.  Dennis 1079 

Eastern  Counties  R.  Co.  v.  Broom 402 

Erie  and  North-East  R.  Co.  v.  Casey 710 

Ex  partfi  Welton 860 

Ex  parie  Williamson 582 

Fairfield  County  Turnpike  Co.  v.  Thorp 53 

Fayette  Laud  Co.  r.  Louisville  &  Nashville  R.  Co .  459 

Finnegan  v.  Noerenberg 87 

First  Nat.  Bank  of  Dead  wood  v.  Gustin,  &c.  Mining  Co 835 

Fiske,  Estate  of,  In  re 483 

Flash  v.  Conn 909 

Ford  v.  Easthampton  Rubber  Thread  Co 329 

Forrest  v.  Manchester,  &c.  R.  Co. 304 

Fort  Madison  Lumber  Co.  v.  Batavian  Bank 1131 

Foss  v.  Harbottle 267 

Foster  v.  Commissioners  Inland  Revenue 40 

Foster  v.  Essex  Bank 608 

Franklin  Bridge  Co.  v.  Wood 65 

Free  Schools  in  Andover,  Trustees  of  v.  Flint 876 

• 

Gallagher  v.  Germania  Brewing  Co • .     .  37 

Gifford  v.  Livingston 20 

Goodspeed  v.  East  Haddam  Bank 415 

Gray  v.  Coffin 883 

Great  Northern,  &c.  Coal  Co.,  In  re 817 

Green  v.  London  General  Omnibus  Co 410 

Greenwood  v.  Union  Freight  R.  Co .  720 


xii  TABLE   OF   SELECTED   CASES. 

PAGE 

Guardian  Permanent  Benefit  Building  Society,  In  re 585 

Guernsey  v.  Cook 1063 

II.  &  M.  Tin  and  Copper  Mining  Co.,  In  re 811 

Handley  v.  Stutz 844 

Harger  e.  McCullough 893 

Hartford  &  N.  H.  K.  Co.  v.  Croswell 230 

Hastings  Malting  Co.  v.  Iron  Range  Brewing  Co 831 

Hawes  r.  Oakland 282 

Heard  r.  Talbot 358 

Home  t.  Ivy 210 

Hotchkiss  and  Upson  Co.  ».  Union  National  Bank 1127 

Howe,  Brown  &  Co.  v.  Sanford  Fork  and  Tool  Co .     .  1017 

Huddersfield  Canal  Co.  v.  Buckley 867 

Huutington  v.  AttrilJ 918 

In  re.     [See  /?«.] 

Indianapolis  Furnace  Co.  v.  Herkimer 97 

Ireland  v.  Palestine,  &c.  Turnpike  Co 879 

Jemison  v.  Citizens'  Saving  Bank 500 

Johnson  v.  Corser 100 

Joint  Stock  Discount  Co.  v.  Brown 958 

Jones  P.  Cincinnati  Type  Foundry  Co 140 

Justices,  Opinion  of 803 

Kennedy  v.  California  Savings  Bank 968 

Knowles  r.  Sandercock 971 

Knox  v.  Eden  Musde  Co .     .  1100 

[Kyd  on  Corporations.     Extract] 188 

Lake  Shore,  &c.  R.  Co.  v.  Prentice 423 

Le  Roy  v.  Globe  Ins.  Co 325 

Leaznre  v.  Ilillegas 453 

Liverpool  Ins.  Co  v.  Massachusetts 1 

Long  P.  Georgia  Pacific  R.  Co 457 

Lowe  v.  Pioneer  Threshing  Co 976 

McCutcheon  v.  Merz  Capsule  Co 503 

McGraw,  Estate  of,  In  re 483 

McNab  v.  McNab  &  Harlin  Manuf.  Co 332 

McNeil  r.  Tenth  National  Bank 1083 

Mack  r.  DeBardeleben  Coal  and  Iron  Co 1027 

Marble  Co.  P.  Barney  .    .    .    .    , 511 

Marshall  ^Baltimore  &  Ohio  R.  R  Co 62 

Marshall  r.  Sherman 924 

Matthews  v.  Hoagland 1075 

Maund  r.  Monmouthshire  Canal  Co 389 

Mayor  of  Norwich  p.  Norfolk  R.  Co 220 

Melvin  v.  Lamar  Insurance  Co 852 

Merrier  r.  Hooper's  Telegraph  Works 287 

Mercantile  Trading  Co.,  In  re 334 


TABLE    OF   SELECTED   CASES.  Xlll 

PAOB 

Michigan,  Bank  of  v.  Niles 493 

Milbauk  v.  New  York,  Lake  Erie,  &  Western  R.  R.  Co 963 

Mill  v.  Hawker 595 

Mills  v.  Northern  Railway  of  Buenos  Ayres  Co 352 

Mobile  &  Ohio  R.  R.  Co.  v.  Nicholas 1043 

Montgomery  v.  Forbes 94 

Monument  Nat'l  Bank  v.  Globe  Works 451 

Moore  &  Handley  Hardware  Co.  v.  Towers  Hardware  Co 45 

Morville  v.  American  Tract  Society 588 

Moyer  v.  Pennsylvania  Slate  Co 883 

Mumrna  v.  Potomac  Co 614 

Narragansett  Bank  v.  Atlantic  Silk  Co.  . 138 

Nassau  Bank  v.  Jones 497 

National  Building  Society,  In  re 582 

National,  &c.  Co.  v.  Mid-Wales  R.  Co 197 

Natusch  v.  Irving 226 

New  York  &  Long  Island  Bridge  Co.  v.  Smith 367 

New  York  &  New  Haven  R.  R.  Co.  v.  Schuyler 1109 

Newcomb  v.  Reed 77 

Nicoll  v.  New  York  &  Erie  R.  R.  Co 181 

Nims  v.  Mount  Hermon  Boys'  School 430 

Norris  v.  Staps 209 

Northwestern  Transportation  Co.  i'.  Beatty 1057 

Northwestern  Union  Packet  Co.  v.  Shaw 590 

Norwich,  Mayor  of  v.  Norfolk  R.  Co 220 

Oakland  R.  Co.  v.  Oakland,  Brooklyn,  &c.  R.  Co 364 

O'Bear  Jewelry  Co.  v.  Volfer 822 

Ohio,  ex  rel.  v.  Neff 805 

Olney  ».  Conanicut  Land  Co 1013 

Opinion  of  the  Justices 803 

Overend,  Gurney  &  Co.  v.  Mid- Wales  R.  Co 197 

Parker  v.  Bethel  Hotel  Co 25 

Parrott  v.  Lawrence 175 

Parsons  v.  Hayes 314 

Parsons  v.  Joseph 311 

Peabody  v.  Flint 263 

Fender  v.  Lushington 1061 

People  v.  Albany  &  Vermont  R.  Co 447 

People  v.  Assessors  of  Watertown 18 

People  v.  Chicago  Gas  Trust  Co 952 

People  v.  England 593 

People  v.  Kankakee  River  Improvement  Co 377 

People  v.  Montecito  Water  Co 74 

People  i'.  North  River  Sugar  Refining  Co 943 

People  v.  O'Brien 728 

People  u.  Phoenix  Bank 37o 

Perun,  Society  v.  Cleveland 120 

Philadelphia,  W.  &  B.  R.  R.  Co.  v.  Quigley .  406 

Phoenix  Life  Assurance  Co.,  In  re 576 


XIV  TABLE   OF   SELECTED   CASES. 

PAGE 

Plymouth  R.  Co.  v.  Colwell 194 

Fond  v.  Framingham  &  Lowell  R.  Co 355 

Proprietors  of  Stourbridge  Caual  v.  Wheeley 152 

Proprietors  of  Charles  River  Bridge  u.  Proprietors  of  Warreu  Bridge  .  157 

[Public  Statutes  of  Mass.     Extract] 447 

Queen  r.  Birmingham  &  Gloucester  R.  Co 440 

Queen  o.  Great  North  of  England  R.  Co 443 

R.  R.,  Ashuelot  v.  Elliott 768 

R.  R,  Bahia  &  San  Francisco,  In  re 1092 

R.  R.,  Buffalo  &  Allegany  v.  Cary 89 

R.  R.,  Cheraw  &  Choctaw  v.  White 79 

R.  R.,  Chicago,  Burlington,  &  Quincy  v.  Iowa 695 

R.  R.,  Eastern  Counties  v.  Broom 402 

R.  R.,  Erie  &  North-East  v.  Casey 710 

R.  R.,  Hartford  &  X.  II.  ».  Croswell 230 

R.  R.,  Lake  Shore,  &c.  v.  Prentice 423 

R.  R  ,  Mobile  &  Ohio  v.  Nicholas 1043 

R.  R.,  New  York  &  New  Haven  v.  Schuyler 1109 

R.  R.,  Oakland  r.  Oakland,  Brooklyn,  &c.  R.  Co 361 

R.  R.,  Philadelphia,  &c.  v.  Quigley 406 

R.  R.,  Plymouth  v.  Colwell 194 

R.  R.,  St  Louis,  &c.  r.  Terre  Haute,  &c.  R.  R 472 

R.  R.,  Severn  and  Wye  and  Severn  Bridge,  In  re 322 

R.  R.,  Union  Pacific  r.  United  States 777 

R,  R.  &  Banking  Co.,  Central  v.  Smith 435 

Railway  Time  Tables,  &c.  Co.,  In  re 860 

He  Bahia  &  San  Francisco  R.  R.  Co 1092 

Re  Estate  of  Fiske 483 

Re  Estate  of  McGraw 483 

Re  Great  Northern,  &c.  Coal  Co 817 

Re  Guardian  Permanent  Benefit  Building  Society 585 

Re  H.  &  M.  Tin  and  Copper  Mining  Co 841 

Re  Mercantile  Trading  Co 834 

/      \  aional  Building  Society 582 

Re  Phoenix  Life  Assurance  Co 576 

Re  Railway  Time  Tables,  &c.  Co 860 

Re  Severn  and  Wye  and  Severn  Bridge  R.  Co 322 

Read  r.  Frankfort  Bank 707 

Reagan  v.  Farmers'  Loan  and  Trust  Co 699 

Reg.  v.  Birmingham  &  Gloucester  R.  Co 440 

Reg.  v.  Great  North  of  England  R.  Co 443 

Rex  0.  Westwood 71 

Rider  p.  Fritchey 888 

Rol*rU  t>.  P.  A.  Deming  Woodworking  Co 218 

Rouse  v.  Merchants'  National  Bank 1005 

Royal  Bank  of  Liverpool  v.  Grand  Junction  R.  &  D.  Co 219 

Russell  v.  Temple 23 

Rusaell  r.  Wakefield  Waterworks  Co 291 

Rutherford  v.  Hill 109 


TABLE   OF   SELECTED   CASES.  XV 

PAGB 

St.  Louis,  &c.  R.  Co.  v.  Terre  Haute,  &c.  R.  Co 472 

Salomon  v.  Salomon  &  Co.,  Limited 1143 

Sandford  o.  McArthur 600 

Sawyer  v.  Hoag 812 

Schufeldt  ».  Smith 1001 

Scovill  v.  Thayer 818 

Scripture  v.  Francestown  Soapstone  Co 1122 

Seaton  v.  Grant 307 

Severn  and  Wye  and  Severn  Bridge  R.  Co. ,  In  re 322 

Shelmerdine  o.  Welsh 1039 

Shepaug  Voting  Trust  Cases 1032 

Sherman  v.  Fitch     .   • 217 

Sinking-Fund  Case 777 

Slocum  v.  Providence  Steam  and  Gas  Pipe  Co 134 

Slocum  v.  Warren 134 

Smith  o.  Hard 253 

Snider's  Sons  Co.  v.  Troy 104 

Snyder  v.  Studebaker 117 

Society  Perun  v.  Cleveland 120 

Spargo's  Case 841 

Starbuck  v.  Mercantile  Trust  Co 1032 

State  v.  Commercial  State  Bank 616 

State  v.  Dawson 69 

State  v.  Fourth  N.  H.  Turnpike  Co 370 

State  v.  Oberlin  Building  and  Loan  Association 375 

State  v.  Passaic  County  Agricultural  Society 445 

[Statutes,  Public,  of  Mass.     Extract] 447 

Steacy  v.  Little  Rock  &  Fort  Smith  R.  R.  Co 869 

Stevens  v.  Rutland  &  Burlington  R.  Co 233 

Stockton  Savings  Bank  ».  Staples 179 

Stourbridge  Canal  Co.  v.  Wheeley 152 

Stoutimore  v.  Clark 142 

Stringer's  Case 334 

Taft  v.  Hartford,  Providence,  &  Fishkill  R.  Co 347 

Taylor  v.  Earle 246 

Taylor  v.  Griswold 1019 

Telegraph  Co.  v.  Davenport 1089 

Thomas  v.  Dakin 4 

Thomas  v.  West  Jersey  R.  Co 465 

Thorpe  v.  Rutland  &  Burlington  R.  Co 681 

Tisdale  v.  Harris 1066 

Tomkinson  v.  South-Eastern  R.  Co 300 

Tomlinson  v.  Jessup 740 

Treadwell  v.  Salisbury  Manufacturing  Co 243 

Trevor  v.  Whitworth 977 

Trustees  of  Dartmouth  College  v.  Woodward 622 

Trustees  of  Davidson  College  v.  Chambers'  Executors 476 

Trustees  of  Free  Schools  in  Andover  v.  Flint 876 

U.  S.,  Bank  of  v.  Dandridge 211 

U.  S.,  Bank  of  v.  Deveaux 58 


xvi  TABLE  OF  SELECTED  CASES. 

PAGE 

Union  Bauk  v.  Jacobs 200 

Union  Pacific  R.  Co.  v.  United  States 777 

Vandervilt  v.  Bennett 1029 

Voting  Trust  Cases,  Shepaug 1032 

Wallamet,  &c.  Co.  v.  Kittridge 362 

Waring  r.  Catawba  Co 89 

Warner  v.  Beers 9 

Warren  r.  Davenport  Fire  Insurance  Co 48 

Washburn  Mill  Co.  v.  Bartlett 515 

Washington  Ins.  Co.  i».  Price 55 

Welton,  Ex  parte 860 

Wenlock,  Baroness  o.  River  Dee  Co 577 

Wheeler  r.  Pullman  Iron  &  Steel  Co 379 

Whitaker  v.  Delaware  &  Hudson  Canal  Co 155 

White  v.  Howard 185 

White  v.  Salisbury 1069 

Whittenton  Mills  v.  Upton 935 

Williams  v.  Boice 339 

Williamson,  Ex  parte 582 

Williamson  v.  Smoot 24 

Willis  v.  Mabon 895 

Willoughby  r.  Chicago  Junction,  &c.  Co 294 

Winsor  v.  Bailey 310 

Winston  v.  Dorsett  Pipe  and  Paving  Co 857 

Yarborongh  v.  Bank  of  England 386 

Yeaton  v.  Bank  of  Old  Dominion 808 

Zabriskie  v.  Hackensack  &  N.  Y.  R.  Co.  760 


SELECT  CASES 


ON 


PRIVATE    CORPORATIONS. 


CHAPTER  I. 
DEFINITION  OF  CORPORATION. 


LIVERPOOL,   &c.   INSURANCE   CO.  v.  MASSACHUSETTS. 


1870.     10  Wallace,  U.  S.  566.1 

ERROR  to  the  Supreme  Court  of  Massachusetts.  Bill  in  equity  by 
State  of  Massachusetts  to  collect  a  tax,  and  to  restrain  company  from 
doing  further  business  till  the  tax  was  paid. 

One  question  raised  in  this  case  was,  whether  the  above  Insurance 
Company  is  a  corporation  within  the  meaning  of  the  Massachusetts 
Statute  imposing  upon  each  fire,  &c.  insurance  company  "  incorporated 
or  associated  under  the  laws  of  any  government  or  State  other  than 
one  of  the  United  States,  a  tax  of  4  per  cent  upon  all  premiums 
charged  or  received  on  contracts  made  in  this  Commonwealth  for 
insurance  of  property."  The  facts  as  to  the  nature  of  the  company 
are  sufficiently  stated  in  the  opinion. 

The  Supreme  Court  of  Massachusetts  decided  that  the  company  was 
liable  to  the  tax.  100  Mass.  531  [Oliver  v.  Liverpool,  &c.  Ins.  Co.~\. 

B.  R.  Curtis  and  J.  G.  Abbott,  for  insurance  company. 

Charles  Allen,  Attorney-General  of  Massachusetts,  for  State. 

MR.  JUSTICE  MILLER These  propositions  dispose  of  the 

case  before  us,  if  plaintiff  is  a  foreign  corporation,  and  was,  as  such, 
conducting  business  in  the  State  of  Massachusetts,  and  we  proceed 
to  inquire  into  its  character  in  this  regard. 

1  Statement  abridged.     Arguments  and  part  of  opinion  omitted.  —  ED. 

1 


2  LIVERPOOL,   ETC.   INS.   CO.   V.    MASSACHUSETTS. 

The  institution  now  known  as  the  Liverpool  and  London  Life  and 
Fire  Insurance  Company,  doing  an  immense  business  in  England  and 
in  this  country,  was  first  organized  at  Liverpool  by  what  is  there  called 
a  deed  of  settlement,  and  would  here  be  called  articles  of  association. 

It  will  be  seen  by  reference  to  the  powers  of  the  association,  as  or- 
ganized under  the  deed  of  settlement,  legalized  and  enlarged  by  the 
acts  of  Parliament,  that  it  possesses  many,  if  not  all,  the  attributes 
generally  found  in  corporations  for  pecuniary  profit,  which  are  deemed 
essential  to  their  corporate  character. 

1.  It  has  a  distinctive  and  artificial  name  by  which  it  can  make 
contracts. 

2.  It  has  a  statutory  provision  by  which  it  can  sue  and  be  sued  in 
the  name  of  one  of  its  officers  as  the  representative  of  the  whole  body, 
which  is  bound  by  the  judgment  rendered  in  such  suit. 

3.  It  has  provision  for  perpetual  succession  by  the  transfer  and  trans- 
mission of  the  shares  of  its  capital  stock,  whereb}*  new  members  are 
introduced  in  place  of  those  who  die  or  sell  out. 

4.  Its  existence  as  an  entity  apart  from  the  shareholders  is  recog- 
nized by  the  act  of  Parliament,  which  enables  it  to  sue  its  shareholders 
and  be  sued  by  them. 

The  subject  of  the  powers,  duties,  rights,  and  liabilities  of  corpora- 
tions, their  essential  nature  and  character,  and  their  relation  to  the 
business  transactions  of  the  community,  have  undergone  a  change  in 
this  country  within  the  last  half-century,  the  importance  of  which  can 
hardly  be  overestimated. 

They  have  entered  so  extensivel}*  into  the  business  of  the  countr}r, 
the  most  important  part  of  which  is  carried  on  b}'  them,  as  banking 
companies,  railroad  companies,  express  companies,  telegraph  com- 
panies, insurance  companies,  &c.,  and  the  demand  for  the  use  of  cor- 
porate powers  in  combining  the  capital  and  the  energy  required  to 
conduct  these  large  operations  is  so  imperative,  that  both  by  statute, 
and  by  the  tendenej*  of  the  courts  to  meet  the  requirements  of  these 
public  necessities,  the  law  of  corporations  has  been  so  modified,  liberal- 
ized, and  enlarged,  as  to  constitute  a  branch  of  jurisprudence  with  a 
code  of  its  own,  due  mainly  to  very  recent  times.  To  attempt,  there- 
fore, to  define  a  corporation,  or  limit  its  powers  by  the  rules  which  pre- 
vailed when  they  were  rarely  created  for  any  other  than  municipal 
purposes,  and  generally  by  royal  charter,  is  impossible  in  this  country 
and  at  this  time. 

Most  of  the  States  of  the  Union  have  general  laws  by  which  persons 
associating  themselves  together,  as  the  shareholders  in  this  company 
have  done,  become  a  corporation. 

The  banking  business  of  the  States  of  the  Union  is  now  conducted 
chiefly  by  corporations  organized  under  a  general  law  of  Congress,  and 
it  is  believed  that  in  all  the  States  the  articles  of  association  of  this 
company  would,  if  adopted  with  the  usual  formalities,  constitute  it  a  cor- 
poration under  their  general  laws,  or  it  would  become  so  by  such  legis- 


LIVERPOOL,   ETC.   INS.    CO.    V.    MASSACHUSETTS.  3 

lative   ratification   as  is  given   by  the  acts  of  Parliament   we   have 
mentioned. 

To  this  view  it  is  objected  that  the  association  is  nothing  but  a  part- 
nership, because  its  members  are  liable  individually  for  the  debts  of  the 
company.  But  however  the  law  on  this  subject  ma}'  be  held  in  Eng- 
land, it  is  quite  certain  that  the  principle  of  personal  liability  of  the 
shareholders  attaches  to  a  very  large  proportion  of  the  corporations 
oTlhis  countiy,  and  it  is  a  principle  which  has  warm  advocates  for  its 
universal  application  when  the  organization  is  for  pecuniary  gain. 

So  also  it  is  said  that  the  fact  that  there  is  no  provision  either  in  the 
deed  of  settlement  or  the  act  of  Parliament  for  the  company  suing  or 
being  sued  in  its  artificial  name  forbids  the  corporate  idea.  But  we  see 
no  real  distinction  in  this  respect  between  an  act  of  Parliament,  which 
authorized  suits  in  the  name  of  the  Liverpool  and  London  Fire  and 
Life  Insurance  Company,  and  that  which  authorized  suit  against  that 
company  in  the  name  of  its  principal  officer.  If  it  can  contract  in  the 
artificial  name  and  sue  and  be  sued  in  the  name  of  its  officers  on  those 
contracts,  it  is  in  effect  the  same^for  process  would  have  to  be  served 
on  some  such  officer  even  if  the  suit  were  in  the  artificial  name. 

It  is  also  urged  that  the  several  acts  of  Parliament  we  have  men- 
tioned expressly  declare  that  they  shall  not  be  held  to  constitute  the 
body  a  corporation. 

But  whatever  ma}'  be  the  effect  of  such  a  declaration  in  the  courts 
of  that  country,  it  cannot  alter  the  essential  nature  of  a  corporation  or 
prevent  the  courts  of  another  jurisdiction  from  inquiring  into  its  true 
character,  whenever  that  may  come  in  issue.  It  appears  to  have  been 
the  policy  of  the  English  law  to  attach  certain  consequences  to  incor- 
porated bodies,  which  rendered  it  desirable  that  such  associations  as 
these  should  not  become  technically  corporations.  Among  these,  it 
would  seem  from  the  provisions  of  these  acts,  is  the  exemption  from 
individual  liability  of  the  shareholder  for  the  contracts  of  the  corpora-  ' 
tion.  Such  local  policy  can  have  no  place  here  in  determining  whether 
an  association,  whose  powers  are  ascertained  and  its  privileges  con- 
ferred by  law,  is  an  incorporated  body. 

The  question  before  us  is  whether  an  association,  such  as  the  one  we 
are  considering,  in  attempting  to  carry  on  its  business  in  a  manner 
which  requires  corporate  powers  under  legislative  sanction,  can  claim, 
in  a  jurisdiction  foreign  to  the  one  which  gave  those  powers,  that  it  is 
only  a  partnership  of  individuals. 

We  have  no  hesitation  in  holding  that,  as  the  law  of  corporations  is 
understood  in  this  country,  the  association  is  a  corporation,  and  that 
the  law  of  Massachusetts,  which  only  permits  it  to  exercise  its  corpo- 
rate function  in  that  State  on  the  condition  of  payment  of  a  specific  tax, 
is  no  violation  of  the  Federal  Constitution  or  of  any  treaty  protected 
by  said  Constitution. 

MR.  JUSTICE  BRADLEY.  Whilst  I  agree  in  the  result  which  the  court 
has  reached,  I  differ  from  it  on  the  question  whether  the  company  is  a 


4  THOMAS   V.   DAKIN. 

corporation.  I  think  it  is  one  of  those  special  partnerships  which  are 
called  joint-stock  companies,  well  known  in  England  for  nearly  a  cen- 
tury, and  cannot  maintain  an  action  or  be  sued  as  a  corporation  in  this 
country  without  legislative  aid.  But  as  it  is  a  company  associated  un- 
der the  laws  of  a  foreign  country,  it  comes  within  the  scope  of  the 
Massachusetts  statute,  and  cannot  claim  exemption  from  its  operation 
for  the  causes  alleged  in  that  behalf.  It  could  not  have  been  the  intent 
of  the  treaty  of  1815  to  prevent  the  States  from  imposing  taxes  or 
license  laws  upon  either  British  corporations  or  joint-stock  companies 
desiring  to  establish  banking  or  insurance  business  therein.  And  cer- 
tainly these  companies  cannot  be  exempted  from  such  laws  on  the 
ground  that  citizens  of  other  States  have  chosen  to  take  some  of 
their  shares.  Judgment  affirmed. 


THOMAS  y.  DAKIN. 

1839.     22  Wendell,  9.* 

IN  the  Supreme  Court  of  New  York.  Action  brought  by  plaintiff 
Thomas  as  president  of  Bank  of  Central  New  York,  an  association 
formed  under  the  General  Banking  Act  of  April  18,  1838,  to  recover 
several  demands  alleged  to  be  due  to  the  institution.  The  declaration 
alleged  the  indebtedness  to  be  to  the  bank,  and  the  promises  to  have 
been  made  to  the  bank ;  concluding  to  the  damage  of  the  bank  of 
$10,000 ;  and,  therefore,  the  said  plaintiff,  as  president  of  the  Bank 
of  Central  New  York,  brings  suit,  &c. 

Demurrer  to  declaration ;  assigning,  in  substance,  the  following 
special  causes :  — 

1.  Plaintiff  Thomas  has  no  cause  of  action. 

2.  No  authority  exists  in  law  for  plaintiff  to  sue  on  behalf  of  the 
bank,  or  upon  promises  made  to  the  bank. 

3.  No  association  of  persons  not  incorporated  are  entitled  by  law  to 
bring  an  action  in  the  name  of  their  president,  but  only  in  their  indi- 
vidual names. 

4.  The  General   Banking   Act   of  1838,   so   far  as  it  purports  to 
authorize  this  suit,  is  unconstitutional ;    and  also  is  void   because  it 
did  not  receive  the  assent  of  two- thirds  of  all  the  members  of  the 
legislature. 

The  Constitution  of  New  York,  article  7,  section  9,  is  as  follows : 
"The  assent  of  two-thirds  of  the  members  elected  to  each  branch  of 
the  legislature  shall  be  requisite  to  every  bill  .  .  .  creating,  continuing, 
altering,  or  renewing  any  body  politic  or  corporate." 

1  Statement  abridged  from  facts  stated  by  reporter  and  from  facts  stated  in  the 
opinions.  The  arguments  are  omitted  ;  also  the  greater  part  of  the  opinions.  — ED. 


THOMAS    V.   DAKIN.  5 

The  provisions  of  the  General  Banking  Act  of  1838  are  sufficiently 
stated  in  the  opinion  of  NELSON,  C.  J. 

C.  P.  Kirkland,  and  8.  A.  Foote,  for  plaintiffs. 

Ward  Hunt,  for  defendant. 

NELSON,  C.  J.  .  .  .  Are  these  associations  corporations?  In  order 
to  determine  this  question,  we  must  first  ascertain  the  properties  essen- 
tial to  constitute  a  corporate  hod}',  and  compare  them  with  those 
conferred  upon  the  associations  ;  for  if  the}'  exist  in  common,  or  sub- 
stantially correspond,  the  answer  will  he  in  the  affirmative.  A  corpo- 
rate body  is  known  to  the  law  by  the  powers  and  faculties  bestowed  upon  - 
it,  expressly  or  impliedly,  by  the  charter;  the  use  of  the  term  corpo- 
ration in  its  creation  is  of  itself  unimportant,  except  as  it  will  imply  the 
possession  of  these.  They  may  be  expressly  conferred,  and  then  they 
denote  this  legal  being  as  unerringly  as  if  created  in  general  terms.  Ji. 
has  been  well  said  by  learned  expounders  that  a  corporation  aggrc- 
gate  is__an^  artificial  body  of  men,  composed  of  divers  individuals,  the 
ligaments  of  which  body  are  the  franchises  and  liberties  bestowed  upon 
it,  which  bind  and  unite  all  into  oneT  and  in  which  consists  the  whole 
frame  and  essence  of  the  corporation.  The  "franchises  and  liberties," 
or,  in  more  modern  language,  and  as  more  strictly  applicable  to  private 
corporations,  the  powers  and  faculties,  which  are  usually  specified  as 
creating  corporate  existence,  are:  1.  The  capacity  of  perpetual  succes- 
sion ;  2.  The  power  to  sue  and  be  sued,  and  to  grant  and  receive  in 
its  corporate  name;  3.  To  purchase  and  hold  real  and  personal  estate;  -* 
4.  To  have  a  common  seal ;  and  5.  To  make  by-laws.  These  indicia 
were  given  by  judges  and  elementary  writers  at  a  very  early  day :  since 
which  time  the  institutions  have  greatly  multiplied,  their  practical 
operation  and  use  have  been  thoroughly  tested,  and  their  peculiar  and 
essential  properties  much  better  understood.  Any  one  comprehending 
the  scope  and  purpose  of  them  at  this  day  will  not  fail  to  perceive 
that  some  of  the  powers  above  specified  are  of  trifling  importance,  while 
others  are  wholly  unessential.  For  instance,  the  power  to  purchase 
and  hold  real  estate  is  no 'otherwise  essential  than  to  afford  a  place  of 
business ;  and  the  right  to  use  a  common  seal,  or  to  make  by-laws, 
may  be  dispensed  with  altogether.  For  as  to  the  one,  it  is  now  well 
settled  that  corporations  may  contract  by  resolution,  or  through  agents, 
without  seal ;  and  as  to  the  other,  the  power  is  unnecessary,  in  all 
casps  where  the  charter  sufficiently  provides  for  the  government  of  the 
body.  The  distinguishing  feature,  far  above  all  others,  is  the  capacity 
conferred,  by  which  a  perpetual  sitccession  of  differeutjpersons  shall  be 
regarded  in  the  law  as  one  and  the  same-body^  and  may  at  all  times 
act  in  fulfilment  of  the  objects  of  the  association  <i&iL£i2Lale  individual. 
In  this  way  a  legal  existence,  a  body  corporate,  an  artificial  being,  is 
constituted ;  the  creation  of  which  enables  any  number  of  persons  to 
be  concerned  in  accomplishing  a  particular  object,  as  one  man.  While 
the  aggregate  means  and  influence  of  all  are  wielded  in  affecting  it,  the 
operation  is  conducted  with  the  simplicity  and  individuality  of  a  natural 


6  THOMAS   V.   DAKIN. 

person.  In  this  consists  the  essence  and  great  value  of  these  institu- 
tions. Hence  it  is  apparent  that  the  only  properties  that  can  be  re-_ 
Carded  strictly  as  essentiaJL.areJ.hose  which_are  indispensable  to  mould 
the  different  persons  into  this  artificial  bcingLand^ thereby _  enable  it  to 
act  in  the  way  above  stated^  When  once  constituted,  this  legal  being 
created,  the  powers  and  faculties  that  may  be  conferred  are  various,  — 
limited  or  enlarged  at  the  discretion  of  the  legislature,  and  will  depend 
upon  the  nature  and  object  of  the  institution,  which  is  as  competent  as 
a  natural  person  to  receive  and  enjoy  them.  We  may,  in  short,  con- 
clude by  saying,  with  the  most  approved  authorities  at  this  daj',  that 
the  essence  of  a  corporation  consists  in  a  capacity  :  1.  To  have  a  per- 

x  jM?tual  succession  under  a  special  name,  and  in  an  artificial  form  ;  2.  To 
take  and  grant  property,  contract  obligations,  sue  and  be  sued  by  its 

,  corporate  name  as  an  individual ;  and  3.  To  receive  and  enjoy  in  com- 
mon, grants  of  privileges  and  immunities. 

We  will  now  endeavor  to  ascertain  with  exactness  the  powers  and 
attributes  conferred  upon  these  associations  by  virtue  of  the  statute. 
The  first  fourteen  sections  (1  to  14)  prescribe  the  duties  of  the  comp- 
troller in  furnishing  notes  for  circulation,  taking  the  required  securities, 
&c.  The  loth  provides  that  any  number  of  persons  may  associate  to 
establish  offices  of  discount,  deposit,  and  circulation.  The  16th,  that 
they  shall  make  and  file  a  certificate,  specifying:  1.  The  name  to  be 
used  in  the  business ;  2.  The  place  where  the  business  shall  be  carried 
on :  3.  The  amount  of  capital  stock,  and  number  of  shares  into  which 
divided;  4.  Tlie  names  of  the  shareholders;  5.  The  duration  of  the 
association.  The  18th  confers  upon  the  persons  thus  associating  the 
most  ample  powers  for  carrying  on  banking  operations,  together  with 
the  right  "to  exercise  such  incidental  powers  as  shall  be  necessary  to 
carry  on  such  business ; "  also  to  choose  a  president,  vice-president, 
cashier,  and  such  other  officers  and  agents  as  may  be  necessary.  By 
the  21st  and  22d  sections,  contracts,  notes,  bills,  &c.,  shall  be  signed 
by  the  president  and  cashier;  and  all  suits,  actions,  &c.,  are  to  be 
brought  in  the  name  of,  and  also  against  the  president  for  the  time 
being ;  and  not  to  abate  by  his  death,  resignation,  or  removal,  but  to 
be  continued  in  the  name  of  the  successor.  24th  section :  The  associ- 
ation mny  purchase  and  hold  real  estate,  &c.,  the  conveyance  to  be 
made  to  the  president,  or  such  other  officer  as  shall  be  designated,  who 
may  sell  and  convey  the  same  free  from  any  claim  against  share- 
holders. 19th  section:  The  shares  of  capital  stock  to  be  deemed  per- 
sonal property,  transferable  on  the  books  of  the  association  ;  and  every 
person  becoming  a  shareholder  by  such  transfer,  shall  succeed  to  all 
the  rights  and  liabilities  of  the  prior  holder.  23d  section  :  No  share- 
holder to  be  personally  liable  ;  and  the  association  is  not  to  be  dis- 
solved by  the  death  or  insanity  of  any  shareholder. 

1.  Upon  a  perusal  of  these  provisions,  it  will  appear  that  the  associa- 
tion acquires  the  power  to  raise  and  hold  for  common  use  any  given 
amount  of  capital  stock  for  banking  purposes,  which,  when  subscribeci. 


THOMAS   V.   DAKIN.  7 

is  made  personal  property,  and  the  several  shares  transferable  the 
same  and  with  like  effect  as  in  case  of  corporate  stock  j_  to  assume  _ 
a  common  name  under  which  to  manage  all  the  affairs  of  the  associa_- 
tion  ;  to  choose  all  officers  and  agents  that  may  be  necessary  for  the_ 
purpose,  and  remove  and  appoint  them  at  pleasure.-  It  will  hence  be 
seen,  that  although  the  association  ma}'  be  composed  of  a  number  of 
different  persons,  holding  an  interest  in  the  capital  stock,  its  operations 
are  so  arranged  that  they  do  not  appear  in  conducting  its  affairs  ;  all 
are  so  bound  together,  so  moulded  into  one,  as  to  constitute  but  a 
single  bod}',  represented  by  a  common  name,  or  names  (the  knot  of  the 
combination),  and  in  which  all  the  business  of  the  institution  is  con- 
ducted by  common  agents.  In  this  way  it  purchases  and  holds  real 
and  personal  property,  contracts  obligations,  discounts  bills,  notes, 
and  other  evidences  of  debt,  receives  deposits,  buys  gold  and  silver 
bullion,  bills  of  exchange,  &c.,  loans  money,  sues  and  is  sued,  &c.  It 
is  true  some  portion  of  the  business  is  conducted  in  the  assumed  name, 
and  some  in  the  name  of  the  president  for  the  time  being ;  but  this  in 
no  manner  changes  the  character  of  the  body.  A  corporation  may_haxe 
morejihan  one  name  ;  it  may  have_one_in  which  to  contract,  grant,  &c^ 
and  another  in  which  to  sue  and  be  sued ;  so  it  ma}7  be  known  by  two 
different  names,  and  ma}'  sue  and  be  sued  in  either ;  and  the  name  of 
the  president,  his  official  name,  or  an}"  other,  will  answer  every  pur- 
pose. 2  Bacon's  Abr.  5;  2  Salk.  451;  2  Id.  237;  Ld.  Raym.  153, 
680.  The  only  material  circumstance  is,  a  name,  or  names,  of  some 
kind,  in  which  all  the  affairs  of  the  company  may  be  conducted.  So 
much,  and  no  more,  is  essential  to  give  simplicity  and  effect  to  the 
operation.  An  artificial  being  is  thus  plainly  created,  capable  of 
receiving  all  the  ample  powers  and  privileges  conferred  upon  the  asso- 
ciations, and  of  managing  their  diversified  concerns  in  an  individual 
capacity.  All  business  is  to  be  conducted  in  a  common  or  proper 
name. 

2.  This  artificialj)eing  possesses  tiie  powers  of  perpetual  succession.  ' 
Neither  solg_QjLshares  or  death  of  shareholders  affect  it ;  if  one  should 
sell  his  interest,  or  die,  the  purchaser  or  representative,  by  operation  of 
law,  immediately  takes  his  place.  §  19.  Nor  can  the  insanity  of  a 
member  work  a  dissolution.  Id.  Officers  and  agents  for  conducting 
the  business  of  the  association  are  secured.  In  case  of  vacancy,  by 
death  or  otherwise,  the  place  may  at  once  be  filled.  §  18.  For  the 
entire  duration,  therefore,  of  the  association,  and' which  may  be  with- 
out limit,  §  16,  sub.  5,  the  whole  body  of  shareholders,  though  perpet- 
ually shifting,  constitute  the  same  uniform,  artificial  being  which  is  to 
be  engaged  through  the  instrumentality  of  officers  and  agents  in  con- 
ducting the  business  of  the  concern,  and  no  member  is  personally 
liable.  §  23.  Then,  as  to  the  powers  conferred,  without  again  specially 
recurring  to  them,  it  will  be  seen  at  once  that  the  associations  possess 
all  that  are  deemed  essential,  according  to  the  most  approved  author- 
ities, to  constitute  a  corporate  body.  They  have  a  capacity:  1.  To 
have  perpetual  succession  under  a  common  name,  and  in  an  artificial 


8  THOMAS  V.  DAKIN. 

form ;  2.  To  take  and  grant  property,  contract  obligations,  to  sue  and 
be  sued  by  its  corporate  name,  in  the  same  manner  as  an  individual ; 
3.  To  receive  grants  of  privileges  and  immunities,  and  to  enjoy  them 
in  common.  All  these  are  expressly  granted,  and  many  more,  besides 
the  general  sweeping  clause,  "  to  exercise  such  incidental  powers  as 
shall  be  necessary  to  carry  on  such  business"  (meaning  the  business  of 
banking),  under  which  even  the  seal  and  right  to  make  by-laws  are 
clearly  embraced,  if  essential  in  conducting  the  affairs  of  the  institution. 

[After  considering  other  questions,  the  learned  judge  concludes  as 
follows :  — ] 

Upon  the  whole,  I  am  of  opinion:  1.  That  these  associations  are 
corporations ;  2.  That  the  legislature  possesses  no  power  to  pass  a 
general  law  like  the  one  under  consideration  by  a  majority  bill ;  and 
3.  That  they  ma}-  pass  it  by  two-thirds  of  the  members  elected. 

The  plaintiff  is  therefore  entitled  to  judgment  on  the  demurrer,  with 
leave  to  amend  on  the  usual  terms. 

[CowEN,  J.,  gave  an  elaborate  opinion,  concurring  with  NELSON, 
C.  J.,  on  points  1  and  2.  As  to  point  3,  he  inclined  to  agree  with 
NELSON,  C.  J.  His  opinion  concludes  as  follows  :  — ] 

But  this  branch  of  the  argument  need  not  be  pursued ;  for  it  was 
agreed  on  both  sides,  at  the  bar,  that  we  must,  on  this  record,  pre- 
sume the  general  banking  law  to  have  been  passed  by  two-thirds  of 
all  the  members  elected  to  both  houses.  We  must  clearly  do  so  until 
the  fact  is  denied  by  plea.  The  requisite  constitutional  solemnities  in 
passing  an  act  which  has  been  published  in  the  statute  book,  must 
always  be  presumed  to  have  taken  place  until  the  contrary  shall  be 
clearly  shown.  Should  the  defendant  withdraw  his  demurrer,  and 
plead  specially  that  the  law  in  question  did  not  receive  the  assent  of 
two-thirds,  as  required  by  the  Constitution,  it  will  then  be  in  order  to 
pass  upon  the  validity  of  such  an  objection. 

Being  clear  that  the  plaintiff's  declaration  is  sufficient  in  substance, 
and  that  he  has  technical!}'  and  aptly  set  forth  his  cause  of  action 
according  to  the  statute,  I  think  there  should  be  judgment  for  him 
with  leave  to  withdraw  the  demurrer,  and  plead  on  payment  of  costs. 

BRONSON,  J.  I  concur  fully  in  the  opinions  expressed  by  my 
brethren,  that  associations  formed  under  the  general  banking  law  are 
corporations,  and  that  the  assent  of  two-thirds  of  all  the  members 
elected  to  each  branch  of  the  legislature  was  necessary  to  the  passing 
of  the  act.  But,  as  at  present  advised,  I  cannot  concur  in  the  opinion 
that  the  legislature  has  the  constitutional  power,  although  two-thirds 
may  assent,  to  provide  by  a  general  law  for  the  creation  of  an  indefinite 
number  of  corporations  at  the  pleasure  of  any  persons  who  may  associ- 
ate for  that  purpose. 

It  was  conceded  on  the  argument,  that  the  demurrer  docs  not  reach 
the  objection  that  the  act  was  not  passed  by  a  two-thirds  vote  ;  and  I 
have  not,  therefore,  considered  the  question  whether  we  can  look 
Ixjyond  the  statute  book.  A  plea  may  render  it  necessary  for  us  to 
pass  upon  that  question.  Judgment  for  plaintiff. 


WARNEE   V.   BEEES. 


WARNER  v.  BEERS,  PRESIDENT  OF  THE  NORTH  AMERICAN  TRUST 
AND  BANKING  Co. 

BOLANDER  v.  STEVENS,  PRESIDENT  OF  THE  BANK  OF  COMMERCE 

IN  NEW  YORK. 

1840.     23  Wendell,  103.1 

IN  the  Court  of  Errors  of  the  State  of  New  York.  Demurrers  to 
declarations,  raising  substantially  the  same  questions  as  in  Thomas  v. 
Dakin,  22  Wendell,  9  [ante,  p.  4].  The  Supreme  Court  gave  judg- 
ment in  both  cases  for  the  original  plaintiffs,  Beers  and  Stevens;  refer- 
ring for  reasons  to  the  opinions  delivered  in  Thomas  v.  Dakin.  Both 
causes  were  removed  by  writs  of  error  to  the  Court  for  the  Correction 
of  Errors. 

L.  Sanford  and  J.  A.  Spencer,  for  plaintiffs  in  error. 

W.  C.  J\Toyes  and  S.  A.  Foote,  for  Beers. 

W.  Kent  and  I).  B.  Qgden,  for  Stevens. 

[Opinions,  which  are  reported  in  full,  were  delivered  by  BRADISH, 
President  of  the  Senate,  WALWORTH,  Chancellor,  ROOT,  Senator,  and 
VEKPLANCK,  Senator.  k' A  brief  analysis"  of  these  opinions  may  be 
found  in  a  prefatory  note  by  the  reporter,  23  Wendell,  p.  103.  Por- 
tions of  the  opinion  of  VERPLANCK,  Senator,  are  as  follows]  :  — 

VERPLANCK,  Senator.  [The  learned  Senator  dissented  from  the 
view  of  the  Supreme  Court,  that  the  Court  were  bound,  until  the  fact  is 
denied  by  plea,  to  presume  that  the  General  Banking  Law  was  passed  by 
a  two-thirds  vote.  He  was  of  opinion  that  the  Court,  in  deciding  upon 
the  demurrer,  should  ascertain  whether  the  Act  received  a  two-thirds 
vote ;  and  that,  if  it  were  found  that  the  Act  received  less  than  a  two- 
thirds  vote,  it  would  then  be  the  duty  of  the  Court  to  inquire  whether 
the  provisions  of  the  Act  were  such  in  themselves  as  to  bring  the  case 
within  the  constitutional  requirement.  After  some  discussion  of  other 
topics,  the  opinion  proceeds  as  follows]  :  — 

.  .  .  What,  then,  is  a  body  corporate?  What  is  its  necessary  and 
essential  meaning?  "It  is  called  a  bod}-  corporate,"  says  Lord  Coke, 
"  because  the  persons  composing  it  are  made  into  one  bod}'."  "  It  is 
only  in  abstracto,  and  rests  only  in  contemplation  of  law."  10  R.  oO. 
So  again,  he  says,  1  Inst.  202,  250,  "Persons  capable  of  purchasing 
are  of  two  sorts,  — persons  natural  created  of  God,  and  persons  created 
l>y  the  policy  of  man,  as  persons  incorporated  into  a  body  politic."  If, 
leaving  the  quaint  scholastic  teaching  of  the  father  of  English  law,  we 
come  to  the  clearer  and  directer  sense  of  our  own  Marshall,  we  find  the 
same  prevailing  idea.  "  A  bod}'  corporate  is  an  artificial  being,  invis- 
ible, intangible,  existing  only  in  contemplation  of  law.  Being  the 

1  Statement  abridged.     Arguments  omitted ;  also  part  of  opinions.  —  ED. 


10  WARNER  V.   BEERS. 

creature  of  law,  it  possesses  only  the  properties  conferred  upon  it  bj-  its 
charter.  Among  the  most  important  of  these  are  immortality,  and,  if 
the  expression  may  be  allowed,  individuality."  4  Wh.  R.  636  ;  1  Peters 
R.  46.  Again :  "  It  is  precisely  what  the  act  of  incorporation  makes 
it ;  derives  all  its  powers  from  that  act,  and  is  capable  of  exerting  its 
faculties  only  in  the  manner  which  that  act  authorizes."  "  Within 
the  limits  of  the  properties  conferred  by  its  charter,  it  can,"  says  Black- 
stone,  *'  do  all  acts  as  natural  persons  may."  "  In  corporations,"  says 
Professor  Woodesou,  "  individuals  are  invested  by  the  law  with  a  politi- 
cal character  and  personality  wholly  distinct  from  their  natural  capa- 
city." "  A  corporation,"  says  Kyd  on  Corporations,  13,  "is  not  a 
mere  capacity,  but  a  political  person  in  which  many  capacities  reside." 
Thus,  then,  the  essential  legal  definition  that  covers  the  whole  ground, 
and  expresses  the  very  essence  of  the  being  of  a  body  corporate,  is 
this :  "Jt_js_an  artificial  legal  person,  a  succession  of  individuals,  jn* 
an  aggregate  body  considered  by  the  law  as  a  single  continuous  per- 
sotuJiinitgd  to  one  peculiar  mode  of  action,  and  having  power  only 
of  the  kind  and  degree  prescribed  by__the  Jaw_which  confers  them." 
.Such  is  the  established  notion  of  our  common  law.  .  .  . 

So  far  was  this  principle  of  corporate  personality  carried  in  our  old 
common  law,  that  reasons  were  expressly  assigned  why  a  corporation 
could  not  be  excommunicated  or  punished  for  crime.  "  Because  it  has 
no  soul,"  said  Lord  Coke,  which,  however  ludicrously  it  may  now  sound, 
was  but  sa3-ing  quaintly,  and  in  the  style  of  that  day,  what  in  modern 
times  would  be  expressed  by  sa3'ing  that  a  corporation,  being  an  arti- 
ficial and  not  a  moral  person,  must  be  incapable  of  guilt.  The  very 
able  argument  in  the  celebrated  historical  case  of  the  charter  of  Lon- 
don in  1682  went  a  good  deal  into  these  refinements,  and  it  was  held 
on  one  side  that  a  political  person  had  a  mind  and  reason,  according 
to  Lord  Chief  Justice  Hobart,  and  that  its  reason  was  expressed  by  its 
by-laws ;  whilst  the  attorney-general,  whom  Bishop  Burnet  has  egre- 
giously  wronged  in  calling  him  "  a  hot,  dull  man,"  argued  most  acutely, 
as  well  as  very  learnedly,  in  support  of  the  capacity  of  a  corporation  to 
incur  political,  if  not  moral,  guilt  and  punishment. 

All  these,  it  is  true,  are  refinements  of  technical  reasoning,  in  a  taste 
and  fashion  of  thought  which  have  passed  away ;  but  the}'  prove  con- 
clusivel}'  how  strong  and  undoubted  was  that  legal  principle  of  per- 
sonality upon  which  these  mere  inferences  and  nice  distinctions  were 
founded. 

In  order  to  continue  the  existence  of  such  an  artificial  person,  per- 
petual succession  is  ordinarily  necessarj-,  though  it  was  not  strictlj- 
essential,  for  it  may  be  confined  to  any  given  number  of  lives  in  being, 
holding  in  a  sort  of  corporate  joint  tenancy,  of  which  I  think  examples 
.  may  be  found.  As  a  legal  person,  it  has  only  the  powers  and  propei^ 
ties  specifically  conferred  upon  it ;  and,  cap  posses  and_exercise  no 
oflTers,  exceptjiuch^as  are  absolutely  necessary  to  the  exerclsejofjhe 
powers  expressly  given..  This  is  the  enactment  of  our  revised  statutes, 


WARNER   V.    BEERS.  11 

which,  as  our  revisers  rightl}'  said  in  their  report  on  that  title  of  the 
law,  is  "  declarator}'  of  a  principle  of  law  frequently  recognized  by 
our  courts,  and  which  it  was  deemed  useful  to  confirm  by  legislative 
authority."  To  these  are  added  certain  legal  incidents  by  the  common 
law,  also  declared  in  our  statute,  and  common  to  all  corporations,  as  to 
sue  and  be  sued,  hold  and  convey  real  and  personal  property,  to  appoint 
officers  for  its  services,  and  to  make  by-laws  for  the  management  of  its 
affairs.  To  these  more  important  rights  the  law  adds  the  external  evi- 
dence of  a  name  and  a  common  seal.  This  last,  though  apparently  a 
matter  of  form,  is  not  without  effect,  any  more  than  the  legal  conse- 
quences of  seals  to  instruments  in  England  and  this  state,  so  widely 
different  from  those  of  other  legal  systems,  where  the  distinction  be- 
tween sealed  and  unsealed  instruments  is  unknown.  It  is  only  through 
a  common  seal  and  name  that  any  grant  of  lands,  or  covenant  touching 
them,  can  be  made  by  a  corporation. 

There  are  several  very  useful  and  beneficial  accessary  powers,  or 
attributes  very  often  accompanying  corporate  privileges,  especially  in 
moneyed  corporations,  which,  in  the  existing  state  of  our  law,  as  modi- 
fied by  statutes,  are  more  prominent  in  the  public  eye,  and  perhaps 
sometimes  in  the  view  of  our  courts  and  legislatures,  than  those  which 
are  essential  to  the  being  of  a  corporation.  Such  added  powers,  how- 
ever valuable,  are  merely  accessary.  They  do  not  in  themselves  alone 
confer  a  corporate  character,  and  may  be  enjoyed  by  unincorporated 
individuals.  Such  a  power  is  the  transferability  of  shares,  whereby 
investments  ma}-  be  made,  without  the  owner  losing  the  future  control 
of  his  funds  under  changes  of  circumstances.  Such,  too,  is  the  limited 
responsibility  by  which  the  stockholder,  having  once  fairly  paid  up  his 
share  of  the  capital,  is  exempted  from  further  personal  liabilit}-.  So, 
too,  the  convenience  of  holding  real  estate  for  the  common  purposes,  ex- 
empt from  the  legal  inconveniences  of  joint  tenancy  or  tenancy  in  com- 
mon.  Again :  there  is  the  continuance  of  the  joint  property  for  the 
benefit  and  preservation  of  the  common  fund,  indissoluble  by  the  death 
or  legal  disability  of  any  partner.  Every  one  of  these  attributes  or 
powers,  though  commonly  falling  within  our  notions  of  a  moneyed  cor- 
poration, is  quite  unessential  to  the  legality  of  a  corporation,  may  be 
found  where  there  is  no  pretence  of  a  body  corporate,  nor  will  they 
make  one  if  all  were  combined,  without  the  presence  of  the  essential 
quality  of  legal  individuality.  This  distinction  has  been  observed 
and  marked  by  Mr.  Kyd,  Kyd  on  Corporations,  13,  with  logical  acute- 
ness  and  precision  :  u  A  corporation  is  a  political  person,  capable,  like 
a  natural  person,  of  enjoying  a  variety  of  franchises.  It  is  to  a  fran- 
chise as  the  substance  to  its  attribute.  It  is  something  to  which 
many  attributes  belong,  but  it  is  itself  something  distinct  from  those 
attributes." 

Thus,  the  transferability  of  shares  is  not  essential  to  a  corporation. 
For  instance,  it  does  not  enter  into  the  constitution  of  our  chartered 
colleges,  academies,  hospitals,  and  other  corporate  institutions  founded 


12  WARNER  V.   BEERS. 

by  public  endowment,  or  private  beneficence.  It  does  not  enter  into 
the  charters  of  incorporated  scientific  and  literary  societies  for  mutual 
benefit  or  charity,  in  the  funds  of  which  the  members  have  a  beneficial 
interest.  On  the  other  hand,  such  a  right  of  transfer  may  be  incor- 
porated into  partnership  articles,  and  become  a  fundamental  condition 
of  them.  The  general  rule,  in  absence  of  any  express  stipulation,  is 
indeed  the  reverse  of  this,  and  in  practice  it  is  comparatively  rare 
amonsrst  us.  Hence  it  has  become  common  to  consider  such  trans- 
ferability  as  a  clear  indication  of  a  corporate  character. 

[After  referring  to  the  joint  stock  companies  authorized  by  statutes 
in  England,  the  opinion  proceeds.]  But,  on  this  head  of  transfera- 
bility,  we  need  not  rely  upon  English  authority  in  our  own  usages  and 
decisions. 

In  the  articles  of  the  Merchants'  Bank  Association,  before  our  re- 
straining act,  a  similar  transferability  of  shares  was  provided,  and 
these  articles  have  the  authority  of  Alexander  Hamilton  for  their 
validity.  I  shall  have  occasion  to  refer  to  them  more  full}'  hereafter. 

So  again,  in  the  case  of  the  Albany  Exchange,  before  it  received  its 
present  charter,  the  validity  of  the  partnership  or  joint  stock  company 
for  a  public  enterprise,  with  transferable  shares,  was  expressly  recog- 
nized. By  the  Court,  —  COWEN,  J.  "The  objection  taken  on  the 
argument,  that  this  association  was  illegal,  as  being  in  the  nature  of  a 
corporation,  issuing  scrip  and  providing  for  a  transfer  of  stock,  is  not 
well  founded.  The  act  of  associating  in  this  wa}-  is,  we  think,  prop- 
erly characterized  by  the  exception  taken  at  the  trial.  It  constitutes  a 
partnership  valid,  as  being  formed  for  the  purposes  of  a  lawful,  honest 
enterprise."  Townsend  v.  Goewey,  19  Wendell,  427.  The  learned 
judge  then  refers  to  and  adopts  the  authority  of  Colryer  on  Partner- 
ships, p.  624,  and  the  cases  he  cites. 

Again,  this  transferability  may  be  found  in  mam*  sorts  of  trusts.  A 
well-known  instance  of  this  may  be  seen  in  the  Tontine  of  New  York, 
originally  built  for  the  purposes  of  a  Merchants'  Exchange.  It  is  a 
trust  of  real  estate,  with  transferable  shares  as  personal  propert}* ;  it 
was  originally  settled  by  the  most  eminent  counsel  of  this  state,  and 
its  validity  has  been  attested  b}-  nearly  fifty  years'  experience,  during 
which  above  two  hundred  shares  have  passed  through  courts,  assign- 
ments, insolvencies,  bankrupt  commissions,  distributions  of  estates,  &c., 
without  their  legal  transferability  having  ever  been  impeached.  See 
printed  articles  of  the  Tontine,  N.  Y.,  1793. 

In  both  of  these  last  examples,  as  in  other  instances  of  trusts  and 
partnerships,  lands  were  held  exempt  b}-  operation  of  law  from  the  legal 
incidents  of  joint  tenancy,  or  tenancy  in  common,  and  the  estate  con- 
tinued for  the  common  purposes.  This  has  been  noted  as  a  mark  of 
corporate  character ;  yet  most  corporations  are  limited  in  the  extent  of 
its  exercise,  some  are  expressly  excluded  from  the  privilege,  and  very 
many  exist  legally  without  its  actual  exorcise  or  enjoyment. 
/  The  non-dissolution  by  death  or  by  legal  disability  is  also  noted  in 


WARNER   V.   BEERS.  13 

the  opinion  of  the  supreme  court  in  these  cases  as  a  mark  of  a  corpo- 
rate body.  But  that  also  ma}*  be  found  in  the  trusts  just  mentioned, 
and  others  of  a  similar  nature,  and  it  may  be  adopted  as  an  article  of 
ordinary  partnership.  It  is  the  settled  law  of  England  that  it  may  be 
stipulated  that  death  shall  not  dissolve  the  partnership,  and  further, 
that  the  executors  of  the  deceased  shall  become  partners.  Collyer  on 
Part.,  p.  5,  648;  Pease  v.  Chamberlain,  2  Vesey  R.  33;  Haygermun 
v.  Spears,  7  Pick.  R.  235  ;  Wrexham  v.  Huddleton,  1  Swanst.  514. 

Again  :  a  common  name  has  been  regarded  as  a  corporate  criterion. 
To  this  Lord  Ellenborough  gives  a  full  answer  in  Rex  v.  Webb.  "  As 
to  the  fourth  point,  that  the  subscribers  have  presumed  to  act  as  if  they 
were  a  body  corporate,  —  how  is  this  made  out?  It  was  urged  that 
they  assumed  a  common  name,  that  they  have  a  committee,  &c.  But 
are  these  the  unequivocal  evidence  and  characteristics  of  a  corpora- 
tion? How  many  unincorporated  assurance  companies  and  other  de- 
scriptions of  persons  are  there  that  use  a  common  name,  and  have  their 
committees,  general  meetings,  and  by-laws?  Are  these  all  illegal?  or 
which  of  these  particulars  can  be  stated  as  being  of  itself  the  distinc- 
tive and  peculiar  criterion  of  a  corporation?"  Thence  he  infers  that 
"  these  subscribers  have  not  acted  peculiarly  as  a  body  corporate." 
Rex  v.  Webb,  14  East's  R.  406. 

But  perhaps,  in  the  general  and  popular  understanding,  the  most 
familiar  distinction  between  corporate  bodies  and  common  partnerships, 
or  other  joint  undertakings,  is  the  exemption  of  the  associates  from 
personal  liabilit}-  beyond  the  actual  amount  of  their  respective  propor- 
tions of  the  capital.  The  regarding  this  ver}*  frequent  and  important 
incident  of  a  corporation  as  an  essential  characteristic  seems  not  to  be 
confined  to  popular  opinion.  Judge  Cowen  says,  in  the  decision  of  the 
cases  now  before  us:  "Among  other  peculiar  privileges  conferred  on 
these  associations,  and  not  enjoyed  by  natural  persons,  I  allude  to  that 
of  the  exemption  of  members  from  personal  liability  for  debt.  This  is 
mentioned  by  Angell  &  Ames,  in  their  treatise,  as  peculiar  to  a  private 
corporation  ;  they  notice  it  as  a  striking  characteristic  between  a  cor- 
poration and  a  partnership."  Yet  our  own  statute  of  limited  partner- 
ships affords  sufficient  evidence  that  an  alteration  of  the  existing  law 
may  be  made  by  statute,  so  as  to  exempt  from  personal  liability  beyond 
the  stipulated  share  in  the  joint  funds,  for  the  debts  of  a  firm,  without 
the  remotest  thought  of  converting  such  firms  into  bodies  corporate. 
Besides,  the  right  of  making  a  contract,  wherein*  those  who  tender  it 
stipulate  not  to  be  bound  beyond  the  amount  of  some  specific  pledged 
fund,  must  be  a  natural  right  growing  out  of  the  ver}*  nature  of  con- 
tracts. If  a  company  or  association,  or  an  individual,  offers  to  contract 
to  make  certain  payments  onl}*  to  the  amount  of  certain  specific  funds, 
and  others  choose  to  accept  that  contract  on  those  conditions,  there 
can  be  nothing  to  prevent  the  validity  of  such  a  contract,  except  some 
positive  rule  of  law  founded  on  policy  or  an  arbitral1}*  enactment.  In 
the  absence  of  such  a  restriction,  it  is  and  must  be  good.  Such  a  limi- 


14  WARNER   V.   BEERS. 

tation,  then,  must  be  binding  on  all  who  accept  the  conditions.  The 
policy  of  our  law  and  the  usages  of  business  have,  indeed,  rightly  fixed 
the  presumption  the  other  way,  so  that  the  stipulation  and  the  burden 
of  proof  of  the  limited  indebtedness  are  thrown  upon  those  who  ex- 
pect to  be  benefited  by  them.  This  right  has  been  substantially 
admitted  by  the  highest  tribunal  in  Great  Britain,  in  the  case  of 
Minnet  v.  Whinnery,  3  Brown's  Parl.  Cas.,  323,  and  it  was  held  to 
be  good  by  Lord  Ellenborough,  in  Alderson  v.  Clay,  1  Camp.  404. 
The  doctrine  has  been  received  as  settled  law  b}T  one  of  the  best  ele* 
mentary  writers  of  the  day,  often  cited  by  our  own  supreme  court. 
"  When  a  creditor,"  says  Collyer  on  Partnership,  214,  "  has  notice, 
that  by  an  arrangement  between  partners,  one  of  them,  though  appear 
ing  to  the  world  as  a  partner,  shall  not  participate  in  the  loss,  and  shall 
not  be  liable  for  it,  the  creditor  will  be  bound  by  the  arrangement." 

The  original  articles  of  the  Merchants'  Bank  in  the  city  of  New 
York,  as  an  unincorporated  association,  with  limited  liability,  as  well  as 
transferable  shares,  which  were  read  in  argument  by  Mr.  Kent,  have 
the  great  professional  authority  of  Alexander  Hamilton,  who  prepared 
them,  and  of  the  many  eminent  men  who  joined  in  them,  and  whose 
professional  distinction  gives  to  their  approbation  the  character  of  a 
sort  of  judicial  sanction  ;  whilst  the  restraining  act  passed  soon  after 
proves,  as  was  unanswerably  argued,  that  the  legislature  and  its  legal 
advisers  considered  such  a  voluntary  association,  thus  restraining  its 
own  liability,  not  as  a  violation  of  common  law,  but  merety  as  contra- 
dicting the  financial  policy  of  the  State. 

A  similar  analysis  of  such  of  the  customar}-  accessaiy  powers  of 
specially  chartered  moneyed  corporations  as,  from  being  most  condu- 
cive to  ends  of  profit  or  convenience,  are  ordinarily  considered  as  the 
essential  qualities  constituting  corporations,  will  show,  that  all  such 
powers  or  incidents  are  merely  convenient  and  desirable  authorities  or 
modes  of  action,  added  to  and  engrafted  upon  the  creation  of  a  body 
politic ;  not  the  legal  attributes  absolutely  essential  to  a  corporation, 
and  denoting  its  existence  as  such. 

Amongst  us,  as  in  England,  bodies  politic  or  corporate  may  exist 
where  the  ultimate  personal  liability  is  still  retained.  The  personal 
liability  is  indeed  suspended  in  such  cases,  and  for  a  time  merged  in 
that  of  the  artificial  corporate  person  ;  but  there  may  be  an  ulterior  re- 
course  to  the  corporators  when  the  former  fails.  Man)'  corporate  banks 
in  other  states  are  so  constituted,  and  with  us  some  chartered  com- 
panies for  insurance,  &c.,  some  for  an  indefinite,  others  to  a  limited 
extent  beyond  the  capital.  Corporate  bodies  ma}*  exist  also  without 
trunsferability  of  the  rights  of  the  corporators ;  for  a  large  majority  of 
our  literary  and  charitable,  as  well  as  all  our  municipal  corporations, 
are  so.  On  the  other  hand,  by  our  own  common  law  as  it  would 
exist  now,  independently  of  statutory  restrictions,  associations  might 
bo  formed  and  trusts  created,  having  every  one  of  the  above  enumer- 
ated characteristics,  which  have  been  insisted  upon  as  essential  to  a 


WARNER   V.   BEERS.  15 

corporation,  except  that  personality!  which  I  before  stated  as  forming 
its  strict  and  necessary  essential  legal  definition.  TIie"~present  joint- 
stock  companies  of  England  afford  pregnant  examples,  showing  how 
many  of  these  attributes  may  be  embodied  in  voluntary  associations 
which  are  confessedly  not  corporations. 

In  fact  the  line  may  be  very  faint,  and  depending  wholly  upon  the 
purely  legal  and  technical  character  conferred,  whether  a  joint  stock 
association  or  a  trust,  freed  by  law  from  certain  positive  restraints  im- 
posed by  our  modern  statutes,  be  a  corporation  or  not.  The  Tontine 
trust,  before  mentioned,  is  managed  by  directors  annually  elected  by 
stockholders  ;  its  real  estate  is  held  by  trustees,  continuing  their  trust 
from  hand  to  hand  during  the  lives  of  the  original  nominees  and  the 
survivors  of  them,  with  transferable  shares,  and  wholly  without  per- 
sonal liability.  For  the  reasons  already  stated,  the  eminence  of  the 
counsel  (the  late  R.  Harrison)  who  prepared  the  trust,  and  the  fre- 
quency with  which  its  legal  character  must  have  passed  in  review  be- 
fore lawyers  and  courts,  and  always  without  objection,  it  may  well  be 
regarded  as  sanctioned  judicially.  It  is  a  valid  trust.  Add  to  it  a 
legislative  charter,  making  the  associates  a  body  corporate  and  no 
more,  what  then  is  the  effect?  Simply  to  give  a  different  technical 
character,  an  artificial  individuality,  in  Chief  Justice  Marshall's  phrase, 
a  different  mode  of  standing  in  courts. 

Such  was  the  actual  history  of  the  Albany  Exchange.  It  was  a 
joint  stock  company,  formally  decided  to  be  valid.  19  Wendell's  R. 
427.  A  year  or  two  after  (1837)  it  appears  by  our  statute  book  to 
have  been  incorporated.  But  there  is  probably  but  little  difference, 
besides  the  greater  convenience  of  the  corporate  bod}',  between  the 
former  organization  and  the  present. 

The  trusts  specially  permitted  by  an  act  of  last  year,  Statutes  of 
1839,  chap.  174,  for  the  benefit  of  that  singular  people  called  Shakers, 
were  nothing  more  than  exemptions  from  the  recent  restrictions  of 
trusts.  The}'  were  authorized  to  continue,  enlarge  and  manage  their 
property,  by  trusts,  as  the}'  had  done  before  the  change  in  that  title  of 
our  law  effected  by  the  revised  statutes.  Had  the  law,  in  addition 
to  this,  made  every  Shakers'  United  Society  a  body  corporate,  without 
otherwise  varying  the  original  trust,  the  only  change  would  have  been 
the  conversion  of  a  trust  into  an  artificial  legal  person,  with  the  same 
effect  substantially  as  to  the  interests  of  those  beneficially  interested. 

Our  act  for  general  religious  incorporations  regulates  the  incorpora- 
tion of  churches  of  all  religious  denominations  (other  than  those  pro- 
vided for  in  the  first  and  second  sections)  by  trustees,  who  are  to  be  a 
body  corporate. 

Those  who  have  had  occasion  to  look  into  the  mode  in  which  dissent- 
ing religious  trusts  are  held  in  England,  as  I  presume  they  were,  in  the 
same  manner,  in  New  York,  when  a  colony,  will,  I  think,  perceive  that 
our  statute  adds  little  more  than  a  convenient  corporate  character  to 
powers  elsewhere,  and  formerly  here,  exercised  under  trusts. 


16  WARNER  V.   BEERS. 

All  these  considerations  lead  me  to  the  conviction  that,  for  the  pur- 
pose of  constitutional  interpretation,  we  must  look  to  the  strict  legal 
meaning  of  the  phrase  body  politic  or  corporate,  and  not  to  those  cir- 
cumstances or  adjuncts  which  amount  only  to  descriptions  of  the  man- 
ner in  which  such  bodies  are  very  frequently  constituted  when  used  for 
purposes  of  profit.  If  this  be  regarded  as  a  very  strict  rule  of  inter- 
pretation, let  it  also  be  remembered  that  it  is  applied  where  such 
strictness  is  most  appropriate,  in  the  interpretation  of  a  provision 
restraining  the  general  sovereign  power  of  the  state  expressing  the 
public  will  through  a  majority  of  the  people's  representatives.  .  .  . 

The  most  peculiar,  and  the  strictly  essential  characteristic  of  a  cor- 
porate body,  which  makes  it  to  be  such,  and  not  some  other  thing  in 
legal  contemplation,  is  the  merging  of  the  individuals  composing  the 
aggregate  body  into  one  distinct,  artificial  individual  existence.  Now 
tnTs~isT«0£  found  in  the  associations  under  the  act.  A  corporation  can 
sue  and  be  sued  only  by  its  corporate  name.  It  can  act  only  according 
to  the  letter  of  the  law  creating  it.  "  It  derives  all  its  powers  from 
that  act,"  says  Chief  Justice  Marshall,  "  and  is  capable  of  exercising 
"  its  faculties  only  in  the  manner  which  that  act  authorizes."  It  has  no 
natural  powers  which,  in  its  discretion,  it  may  exercise  or  not.  It  can 
exercise  none  of  those  other  powers,  and  possesses  none  of  those  other 
rights  which  the  individuals  composing  it  could  possess  and  exercise, 

Uwere  it  a  mere  societ}*  or  partnership.  Not  so  as  to  these  associations. 
B\-  this  act,  suits  on  behalf  of  such  associations  may  be  brought  in  the 
name  of  the  president.  Persons  having  claims  against  the  company 
may  maintain  their  actions  against  the  president.  But  there  is  no  rea- 
son,  cxcepjJLhat  of  mere  convenience,  why  the  association  may  not  also 
sue  Amjjy*  siipd  under  their  several  real  names,  as  other  partners  ma}T. 
This  reason  of  convenience,  it  is  obvious,  would  not  appty  where  the 
company  was  composed  of  a  few  persons,  as  if,  for  example,  one  of  our 
great  banking  firms  were  to  come  under  the  law. 

It  was  indeed  argued  that  the  technical  construction  which  gives  to 
may  the  meaning  of  must  or  shall,  applies  here.  But  that  construction 
holds  only  when  there  is  a  previous  duty,  to  which  the  statute  adds 
some  new  power  or  authority,  as  in  the  case  of  a  public  officer ;  or 
where  from  other  reasons  it  is  manifest  that  (to  use  Judge  Stop's 
words)  "  the  legislature  meant  to  impose  an  absolute  duty,  not  to  give 
a  discretionary  power;"  otherwise,  as  he  sa3-s,  "the  ordinaiy  use  of 
language  must  be  presumed  to  be  intended,  unless  it  would  defeat  the 
the  provisions  of  the  act."  1  Peters  R.  64.  The  ordinaiy  popular 
discretionary  sense  of  the  word  may  is  also  the  ordinary  legal  one. 
The  other  is  the  exception.  In  our  revised  statutes  the  words  may  and 
shall  are  so  used  and  distinguished.  So  they  are  in  our  annual  legis- 
lation, as  when  it  is  said  of  a  company  that  it  may  hold  real  estate, 
may  take  a  certain  rate  of  tolls,  may  borrow  money. 

Moreover,  here  the  right  to  sue  and  be  sued,  as  other  partners,  is  a 
common-law  right,  and  cannot  be  taken  away  by  mere  implication. 


WARNER  V.   BEERS.  17 

"A  statute  made  in  the  affirmative,  without  negative  words,"  say  the 
highest  authorities,  "  does  not  take  away  the  common  law."  2  Inst. 
200.  See  also  Dwarris  on  Statutes,  637,  and  the  authorities  there 
referred  to.  ... 

Again  :  these  associations  do  not  act  by  a  corporate  name  and  seal, 
but  b}'  another  mode  familiar  to  our  law.  They  can  contract  through 
their  president,  as  a  limited  partnership  must  through  its  general  part- 
ner. The}'  are  authorized  to  sue  and  be  sued  through  him ;  as  Judge 
Co  WEN  observes,  "  The  power  of  the  legislature  to  give  a  right  of  action 
to  one  man  in  his  own  name  for  a  debt  due  to  another  has  always  been 
exercised  from  our  earliest  legal  history,  and  it  is  now  too  late  to  call 
it  in  question."  I  refer  to  the  several  legislative  and  judicial  authori- 
ties which  he  has  collected  in  his  opinion  on  these  cases.  The}-  can- 
not hold  real  estate  as  a  corporation  does,  or  contract  concerning  it 
by  their  own  name  and  common  seal ;  but,  like  partnerships,  they 
can  have  an  equitable  and  beneficial  interest  in  land.  Collyer,  70, 
76.  Their  president  takes  as  a  trustee,  and  the  associates  are  but 
beneficiaries.  .  .  . 

How  then  are  these  associations  to  be  regarded  in  legal  contem- 
plation ? 

I  assent  fully  to  the  conclusive  reasoning  of  the  counsel,  who  chiefly 
pressed  this  part  of  the  argument  (Mr.  Kent),  that  they  are  copartner-  I/ 
ships  relieved  from  the  inhibitions  of  the  restraining  act,  and  thus 
allowed  to  carry  on  banking  business  under  certain  conditions.  The 
policy  of  the  state  has  prohibited  its  citizens  from  issuing  paper  for 
circulation  as  money,  or  from  associating  together  for  certain  banking 
purposes.  1  R.  S.  711.  It  reserved  those  privileges  for  corporate 
banks.  The  act  to  authorize  the  business  of  banking  repealed  that 
prohibition  pro  tanto,  as  to  all  individuals  or  companies  who  would 
comply  with  its  conditions.  The  associations  in  question  are  partner- 
ships complying  with  those  conditions,  and  thus  exempted,  as  any  other 
citizens  may  be  on  the  same  terms,  from  the  operation  of  a  statutory  re- 
straint of  general  right,  which  is  still  binding  on  all  who  will  not  com- 
ply with  the  conditions.  This  is  so  far  in  close  analogy  to  the  law  of 
special  partnership,  where  exemption  from  the  general  liability  imposed 
b}'  the  law  is  tendered  to  all  who  comply  strictl}'  with  the  provisions  of 
the  statute.  The  articles  and  certificate  in  this  act  correspond  to  the 
certificate  setting  forth  the  names  of  partners,  amount  of  capital,  time 
of  termination  and  nature  of  business,  required  by  the  title  of  "  Limited 
Partnerships,"  1  R.  S.  764,  and  with  the  articles  which  every  such  co- 
partnership must  have.  The  general  partner  there  is  authorized  to 
transact  business  and  contract  for  the  rest ;  so,  though  with  less  author- 
ity, is  the  president  here.  The  mode  of  suing  and  being  sued  is  pre- 
cisely the  same  in  both  cases.  .  .  . 

On  the  question  being  put,  Shall  these  judgments  be  reversed?  all 
the  members  of  the  court,  with  but  a  single  exception  (twenty-three 

2 


18  PEOPLE   V.   ASSESSORS   OF  WATERTOWN. 

being  present),  voted  in  the  negative.  Whereupon  the  judgments  of 
the  supreme  court  were  AFFIRMED.  The  court  thereupon  adopted  the 
following  resolutions :  — 

1.  "  Resolved,  That  the  law  entitled  '  An  act  to  authorize  the  busi- 
ness of  banking,'  passed  18th  April,   1838,   is  valid,   and  was  con- 
stitutionally enacted,  although  it  may  not  have  received  the  assent 
of  two-thirds  of  the  members  elected  to  each  branch  of  the  legisla- 
ture."    This  resolution  was  adopted  by  a  vote  of  23  to  1. 

2.  "  Resolved,  That  the  associations  organized  in  conformit}-  with 
the  provisions  of  the  act  entitled  '  An  act  to  authorize  the  business  of 
banking,'  passed  April  1st,  1838,  are  not  bodies  politic  or  corporate, 
within  the  spirit  and  meaning  of  the  constitution."     This  resolution 
WM  adopted  by  a  vote  of  22  to  3.1 


BRONSON,  J.,  IN  PEOPLE  v.  ASSESSORS  OF  WATERTOWN. 

1841.     1  Hill,  New  York,  620-623. 

A  CORPORATION  aggregate  is  a  collection  of  individuals  united  in  one 
body T_undejr_such  a  grant  of  privileges  as  secures  a  succession  of  mem- 
bers  without  changing__the  identity  of  the  body,  and  constitutea._the 
members  for  tjiejime  being  one  artificial  person,  or  legal  being,_f>apa« 
lil.-  of  transuding  some  kind  of  business  like  a  natural  person.  It 
does  not  occur  to  ray  mind  that  anything  else  can  be  essential  to  the 
definition.  Such^a^  union  as  I  have  mentioned  can  only  be  effected 
under  a  grant  of  privileges  from  t.hp.  sovereign  power  of  the  state.  A 
cor|x>ration  is  therefore  said  to  be  a  legal  being,  or  the  mere  creature 
of  law.  It  is  convenient,  though  not  absolutely  necessar}-,  that  this 
artificial  person,  like  a  natural  one,  should  have  a  name  by  which  it 
may  be  known  and  designated  in  the  transaction  of  business.  And 
when  the  doctrine  was  that  a  corporation  could  only  contract  by  its 
seal,  a  seal  was  said  to  be  an  indispensable  requisite.  So  immortality 
was  once  thought  to  be  an  attribute  of  all  corporations :  but  that  now 
means  no  more  than  a  continued  succession  of  members  for  such 
period,  whether  long  or  short,  as  may  be  allotted  to  this  legal  entity 
by  its  creator. 

Now,  a  banking  association,  formed  under  the  law  of  1838,  not  only 
ma)',  bnt  it  must  have  a  name ;  and  a  seal,  though  far  from  being 
essential  to  the  existence  of  a  corporation,  is  nevertheless  an  incident 
to  the  grant  of  corporate  privileges,  though  not  mentioned  in  the  grant 
This  is  not  only  so  at  the  common  law,  but  by  the  statute  also.  1  R.  S- 

1  As  to  the  reasons  for  adopting  these  "  resolutions,"  and  as  to  the  effect  of  Hit 
name,  *ee  the  elaborate  explanation  of  WALWOKTH,  Chancellor,  iu  2  Denio,  pp.  382  t« 
386.  But  compare  BROSSON,  J.,  in  1  Hill,  pp.  618  to  620.  —  EL>. 


PEOPLE   V.   ASSESSORS   OF   WATERTOWN.  19 

599,  §  1.  The  right  to  sue  and  be  sued  is  expressly  conferred  on  these 
associations  ;  and  whether  the  suit  is  brought  in  the  name  by  which  the 
company  transacts  its  other  business,  or  with  the  addition  of  the  name 
of  its  president,  cannot  be  material.  A  corporation  may  have  one  name  > 
for  one  purpose,  and  another  name  for  another  purpose.  And  besides, 
the  general  banking  law  only  provides  that  actions  may  —  not  that 
they  shall  —  be  brought  in  the  name  of,  or  against  the  president ;  and 
the  right  to  sue  and  be  sued,  like  that  of  having  a  common  seal,  is  not 
only  a  common-law  incident  to  the  grant  of  corporate  powers,  but  the 
legislature  has  expressly  provided  that  this  power  shall  vest  in  every 
corporation,  although  not  specified  in  the  act  under  which  it  shall  be  ^ 
incorporated.  1  R.  S.  599,  §§  1,  2.  We  have  already  held,  more  than 
once,  that  these  associations  may  sue  or  be  sued  in  the  same  corporate 
name  by  which  their  other  business  is  transacted. 

The  individuals  composing  those  associations  are  united  in  one  body, 
and  the  members  lost  in  the  corporate  existejige^  It  is  not  the  indi-  / 
vidual  members,  but  the  legal  being  which  acts  and  transacts  business. 
A  continued  succession  of  members,  without  changing  the  identity  of 
the  body,  is  also  as  completely  secured  to  these  institutions  as  it  ever 
was  to  any  other  corporation.  As  to  the  period  or  duration  of  this  con-/ 
tinned  succession,  they  surely  have  scope  and  verge  enough.  I  observe 
from  the  articles  on  file,  that  one  of  these  associations  has  agreed  to 
live  about  five  thousand  years,  and  there  is  nothing  in  the  general  bank 
law  to  prevent  the  associates  from  writing  eternity,  instead  of  time,  as 
the  period  of  corporate  existence.  It  is  true  that  the  association  rna}r 
come  to  an  end  somewhat  short  of  the  mark,  and  the  one  to  which  I 
allude  has,  I  believe,  already  expired,  but  that  was  no  fault  of  the 
charter. 

What  I  had  specially  in  view  in  adding  an}'thing  to  what  has  already 
been  said  upon  this  question,  was  to  bring  the  matter  to  a  single  and 
very  plain  test.  Take  one  of  these  associations  when  formed  pursu- 
ant to  law,  —  say  the  Bank  of  Commerce  in  the  city  of  New  York,  — 
and  compare  it  with  its  neighbor,  the  Bank  of  America,  which  has  a 
special  charter  from  the  legislature  ;  and  then  I  have  yet  to  learn  what 
corporate  capacity  the  one  wants  which  the  other  has.  No  man  can, 
I  think,  point  out  a  substantial  difference  in  the  nature  or  essential 
attributes  of  the  two  institutions.  The  individual  members  are  as  com- 
plete^1 merged  in  the  legal  body,  and  a  succession  of  members  is  as 
effectually  secured  in  the  one  case  as  in  the  other.  In  both  cases  it  is 
the  body,  by  means  of  its  officers  and  agents,  and  not  the  individual 
members,  which  acts  and  transacts  business.  If  the  one  is  not  a  cor- 
poration, the  other  is  not  a-  corporation. 

We  must  not  examine  the  charter  of  these  associations  in  detached 
parcels,  and  say  that  neither  this  power  nor  that  makes  a  corporation. 
It  is  quite  easy  when  the  parts  of  a  time-piece  have  been  separated,  to 
place  the  finger  upon  each  wheel  in  succession  and  say,  This  is  not  a 
a  clock ;  but  let  the  parts  be  again  combined,  and  the  machine  be  set 


20  GIFFORD   V.  LIVINGSTON. 

in  motion,  and  it  will  then  require  some  hardihood  to  deny  that  it  is  a 
clock.  We  must  look  at  these  associations  as  they  appear  when  formed 
and  in  action,  and  then  they  fall  nothing  short  of  that  legal  entity 
which  has  hitherto  been  called  a  corporation.  Others  may  doubt  this. 
I  cannot. 

The  principal  difference  between  a  safety  fund  and  a  free  bank  con- 
sists in  the  fact  that  the  latter  has  larger  privileges  than  the  former. 
But  whether  a  corporation  or  not,  does  not  depend  upon  the  number  or 
magnitude  of  its  powers,  nor  the  manner  in  which  they  were  conferred. 
An  association  under  our  general  laws  for  a  village  library,  or  to  tan 
hides,  possesses  all  the  essential  attributes  of  a  corporation  in  as  great 
perfection  as  the  Bank  of  England  or  the  East  India  Company.  Nor 
is  it  important  in  what  mode,  or  by  what  name  or  particular  agency, 
this  artificial  being  transacts  its  business.  It  is  enough  that  it  has  a 
capacity  to  act  in  some  form  as  a  legal  being. 

It  may  be  true,  as  has  been  argued,  that  the  legislature  intended  to 
make  a  legal  being,  and  give  it  all  the  essential  attributes  of  a  corporate 
body,  and  yet  that  it  should  not  be  a  corporation.  That,  the  legislature 
j,  could  not  do.  I  do  not  refer  to  an}'  written  constitution.  The  con- 
stitution of  things  —  the  order  of  nature —  forbids  it.  Human  powers 
are  not  equal  to  the  task  of  changing  a  thing  by  merely  changing  its 
name. 


HAND,  SENATOR,  IN  GIFFORD  v.  LIVINGSTON. 

1845.     2  Denio,  New  York,  395-398. 

A  CORPORATION,  according  to  my  understanding,  is  a  franchise  granted 
by  government,  by_which  the  members  merge  their  individual  charac- 
artcrs  into  one  artificial  legal  existence.  It  seems  to  me  that  but  two 
requisites  are  necessary, —  that  it  should  be  autborized_-hy  govern- 
ment,  and  that  the  members  should  be  combined  Into  an  artificial  unity. 
We  are  sometimes  told  that  corporations  must  have  perpetual  succes- 
sion, a  right  to  sue  and  be  sued  and  to  hold  property ;  that  they  must 
have  a  common  seal  and  power  to  make  by-laws.  Blackstone  says 
these  are  inseparably  incident  to  corporations ;  and  our  statute  is  to 
the  same  effect.  1  Bl.  Com.  475 ;  1  R.  S.  599.  But  these  attributes 
are  merely  incidental  to  a  corporation  as  such.  It  is  not  essential  to 
the  existence  of  a  corporation  that  it  should  possess  them  all.  Even 
as  to  succession,  why  would  not  an  authority  to  particular  individuals 
named  in  the  act  to  assume  a  corporate  name  and  act  as  a  corporation 
in  certain  business  during  their  joint  lives,  be  a  corporation  ?  As  to 
the  right  to  sue  and  be  sued,  have  a  seal,  and  make  by-laws,  it  was 
decided  more  than  two  centuries  ago  that  these,  if  in  the  charter,  were 


GIFFORD   V.   LIVINGSTON.  21 

merely  declaratory,  and  were  not  necessary  to  create  a  corporation. 
10  Rep.  32;  1  Roll.  Abr.  513,  b.  10  ;  3  Rep.  73;  Norris  v.  Staps, 
Hob.  211  ;  Davenant  v.  Hurdis,  Moor,  564  ;  2  Bac.  Abr.  Corp.  D.  ; 
1  Bl.  Com.  475.  Clearly  no  particular  form  of  words  is  necessary  to 
create  a  corporation.  10  Rep.  32;  3  Id.  73;  2  Danv.  Abr.  214; 
1  Roll.  Abr.  513,  b.  10.  The  case  in  10  Rep.  30b,  31a,  certainly 
seems  to  decide  that  a  corporation  may  exist  without  all  of  these  inci- 
dents. See  also  Allen  v.  Sewatt,  2  Wend.  327  ;  6  Id.  348,  s.  c.  in 
error,  per  Walworth,  Chan.  I  suppose  that  at  the  present  day  there 
can  be  no  dispute  in  this  country  but  that  the  grant  of  a  franchise 
must  emanate  from  the  government.  Blackstone  says  that  among  the 
Romans  a  corporation  could  be  formed  by  voluntary  association  ;  but 
this  is  denied  in  1  Brown's  Civil  Law,  99.  However  this  ma)'  be,  it  is 
now  settled  that  all  voluntary  associations  are  no  more  than  partner- 
ships. Our  law  knows  but  two  classes  of  such  associations  ;  corpora-; 
tions  and  partnerships.  P>en  authorized  joint  stock  companies  in 
England  are  nothing  more  than  partnerships.  The  King  v.  Dodd, 
9  East,  516;  3  Ves.  &  B.  180;  Wordsworth  on  Joint  Stock  Co.  110; 
9  Barn.  &  Cress.  401  ;  1  Id.  74;  Keasley  v.  Codd,  2  Carr.  &  P.  408, 
note;  Maudslay  v.  Le  JSlanc,  Id.  409,  note  ;  Coll.  on  Part.  626,  651  ; 
McCullock's  Com.  Die.  Companies. 

I  have  no  doubt  but  that  a  corporation  ma)*  be  shorn  of  some  of  the 
incidents,  by  the  power  giving  it  existence.  Indeed,  we  have  made  the 
members  of  manufacturing  corporations  personally  liable  to  a  certain 
extent.  And  on  the  other  hand,  in  England  at  least,  powers  can  be 
given  to  partnerships  which  are  similar  to  some  of  those  said  to  be  inci- 
dental to  corporations.  Steward  v.  Greaves,  10  Mees.  &  Welsb.  711  ; 
Beech  v.  Eyre,  5  Mann.  &  Gr.  415.  The  criterion  is  not,  whether 
there  are  not  certain  powers  and  rights  that  are 


the  great  distinctive  feature  of  a  corporation  is,  that  itjs_aju_thorizedju: 
ifTaw  orgrant_to  act  as  an  artificial  being,  the  several  members  of 
which  constitute  one  person  in  law,  and  have  but  a  single  will. 

Having  discussed  the  nature  of  corporations,  we  are  led  next  to 
inquire  whether  associations  under  the  general  banking  law  are  cor- 
porations. This  court  has  at  least  once,  and  the  supreme  court  has 
repeatedly,  declared  that  they  are  ;  and  even  the  case  of  Warner  \. 
Seers  does  not  decide  the  contrary.  Indeed,  I  understand  that  the 
learned  chancellor  could  not  in  that  case  vote  for  the  second  resolution 
as  first  proposed,  because  it  declared  unqualifiedly  that  they  were  not 
corporations.  Do  they  possess  the  attributes  of  corporations  within  the 
settled  definitions  of  that  term  ?  To  determine  this  requires  an  examina- 
tion of  the  nature  and  powers  of  these  institutions.  They  have  their  ex- 
istence by  an  act  of  the  government  ;  the  members  are  so  combined  as  to 
lose  their  individual  character,  and  they  act  solely  as  an  artificial  being  ; 
they  have  power  to  sue  and  be  sued  by  an  artificial  name,  and  may  use 
a  common  seal  ;  they  may  appoint  and  remove  officers,  and  can  only 
act  by  those  officers.  The  individuals  cannot,  as  such,  do  any  act  to 


22 


GIFFORD   V.   LIVINGSTON. 


bind  the  association.  A  member  may  be  sued  at  law  by  the  associa- 
tion :  the  individual  members  are  not  liable  for  the  debts  of  the 
association,  and  they  hold  their  interest  by  transferable  shares.  There 
is  perpetual  succession,  and  immortality,  by  which  I  understand  that 
the  association  is  not  affected  by  a  change  of  members  or  the  death  of 
an}*  number  of  them  less  than  the  whole.  In  short,  every  quality  and 
power,  express  and  incidental,  that  has  ever  been  attributed  to  corpora- 
tions, appear  to  be  given  by  the  legislature  to  these  associations.  One 
or  two  of  these  powers  are  not  expressly  mentioned  in  the  statute,  but 
we  have  seen  that  they  are  always  implied.  If,  then,  the}'  come  into 
existence  as  corporations  do,  and  have  all  the  powers  and  qualities  of 
corporations,  can  the}1  be  denied  that  character  because  the  legislature 
has  not  called  them  corporations  ?  The  act  does  not  declare  that  they 
shall  not  be  corporations  ;  and  if  it  had,  the  essence  of  the  thing  could 
not  be  altered  by  an  arbitrary  change  of  name. 


-J^&^^XU 


»XwUi 


RUSSELL   V.   TEMPLE.  23 


CHAPTER  II. 

DISTINCTION  BETWEEN  CORPORATION  AND  STOCK- 
HOLDERS.1 


RUSSELL  ET  ALS.,  APPELLANTS  v.  TEMPLE  ET  AL.,  APPELLEES. 

1798.     Supreme  Court  of  Massachusetts.     3  Dane's  Abridgment,  IQS. 

[PROBATE  APPEAL.]  In  this  case  the  heirs  of  Thomas  Russell  con- 
tended that  his  shares  in  Maiden,  Charles-river,  Haverhill,  Andover, 
and  Merrimack  bridges,  in  Middlesex  canal,  &c.,  ought  to  be  considered 
as  real  estate,  and  his  widow,  afterwards  married  to  Temple,  ought  to 
have  only  her  dower  for  life  in  them.  On  the  other  hand,  Temple  and 
wife  contended  they  were  personal  estate,  and  ought  to  be  distributed 
as  such,  and  she  have  one-third  part  forever.  The  strongest  case 
among  these,  in  favor  of  real  estate,  was  the  Middlesex  canal,  in  which 
the  corporation  had  a  fee  simple  estate,  or  an  estate  forever,  and  a  per- 
petual toll.  63'  the  statutes  passed  respecting  this  canal  and  real  estate, 
the  property  therein  was  divided  into  800  shares,  and  the  shares  in  the 
canal,  including  the  towing  paths  and  wharves  thereon,  were  made 
transferable  and  taxable  as  personal  estate.  This  corporation  also 
had  power  to  hold  real  estate  to  the  amount  of  £30,000,  over  and  above 
the  canal  itself,  and  this  appendant  real  estate  was  made  taxable  as  real 
estate  of  the  corporation  in  the  several  towns  in  which  it  lay. 

It  was  argued  (for  the  widow)  that  these  shares  were  personal  estate 
for  two  reasons  :  — 

1st.  Because  these  estates  can  only  exist  in  the  corporation,  which 
alone  can  acquire  it,  alone  be  seized  or  possessed  of  it,  alone  pass  it 
away,  manage  or  repair  it,  and  so  must  hold  it  entire ;  and  that  the 
corporation  is  a  moral  person  to  all  the  purposes  of  property.  Its 
tenure  is  to  their  successors,  or  to  their  successors  and  assigns ; 
these  estates  never  can  vest  in  or  be  divided  among  the  individual 
members,  to  hold  as  tenants  in  common  &c.,  in  their  private  capacities. 
Only  the  corporation  can  forfeit  the  estate,  and  that  only  by  forfeiting 
their  charter ;  and  only  the  corporation  can  be  taxed  for  it  on  common 
law  principles  ;  and  on  these  can  it  alone  be  taken  in  execution  for  the 
debts  of  the  corporation  ;  and  on  a  dissolution  of  the  corporation,  "  its 

1  The  distinction  is  also  discussed  in  various  cases  which  are  given  under  special 
topics  treated  of  in  subsequent  chapters.  —  ED. 


24  WILLIAMSON   V.   SMOOT. 

lands  revert  to  the  grantor,  or  his  heirs,  and  the  debts  due  to  or  from 
it  are  totally  extinguished  ;  so  that  the  members  of  it  cannot  recover  or 
be  charged  with  them  in  their  natural  capacities."  And  a  grant  to  a 
corporation  can  only  be  for  its  life  or  continuance.  2  Bl.  Com.  484  ; 
1  Lev.  239  ;  1  Bac.  Abr.  510.  The  case  of  the  Royal  Exchange  In- 
surance Company  v.  Vaughan,  1  Burr.  155,  and  Cowper,  79  to  86, 
Gardner's  Case. 

Second.  Because  the  share  is  personal  estate,  though  the  corporation 
hold  real  estate ;  for  the  individual  member  has  no  estate.  Jnit  on ly_a 
right_to  such  divide^dj^8_lbje^mppratio^,_frpm  time  to  time,  assign  to 
him.  He  is  unknown  on  the  grants  made  to  it,  and  he  cannot  grant 
any  part  of  the  estate  ;  nor  can  he  be  taxed  for  it  but  by  statute  law ; 
nor  can  any  private  member  of  a  corporation  be  distrained  for  a  public 
concern  of  it ;  his  only  remedy  for  his  dividend  is  case  in  assumpsit,  or 
an  action  on  the  case  for  a  wrongful  refusal  or  neglect  to  pa}*  or  allow 
him  his  part  of  the  profits.  4  Wood's  Con.  489,  &c. ;  Cowp.  85  ;  Im- 
pey's  Modern  Pleader,  83;  1  Vent.  351,  Dutch  v.  Warren;  1  Stra. 
406  ;  same  case,  2  Burr.  1011.  So  lands  may  be  real  estate  in  one,  yet 
the  trees  or  corn  growing  on  them  may  be  personal  estate  in  another. 
LiffvrcTsCase,  6  Co.  46  to  50 ;  Imp.  M.  P.  167. 

For  the  heirs  it  was  urged  that  these  shares  were  real  estate,  because 
it  was  said  the  estates  were  real  in  the  corporations  ;  annexed  to  the 
soil ;  and  that  if  these  estates  in  the  corporations  were  real,  the  estates 
of  the  individual  members  in  them  followed  their  nature,  and  were  real ; 
and  that  the  frequent  declarations  of  the  legislature  declaring  such 
shares  personal  estate,  at  least  shew  a  doubt :  that  when  one  has  a  right 
to  receive  rent,  he  has  onty  a  right  to  receive  a  sum  of  money ;  yet  it 
does  not  follow  that  his  estate  is  not  real  estate,  out  of  which  his  rent 
issues. 

The  judgment  of  the  court  was,  that  these  shares  were  personal 
estate,  and  distribution  was  ordered  accordingly.  The  principal  reason 
of  the  decision  appears  to  be,  because  the  court  considered  that  the  indi- 
vidual member,  or  shareholder,  had  only  a  right  of  action  for  a  sum  of 
money,  his  part  of  the  net  profits,  or  dividends.  And  so  the  law  has 
been  held  to  be  since  this  decision  was  made. 


WILLIAMSON  v.   SMOOT. 

1819.     7  Martin,  Louisiana,  31. 

APPEAL  from  the  court  of  the  first  district. 

MATTHEWS,  J.,  delivered  the  opinion  of  the  court.  The  plaintiff 
having  caused  an  attachment  to  be  levied  on  the  steamboat  Alabama, 
the  St.  Stephens  Steamboat  Company  intervened  in  their  corporate 


PARKER  V.  BETHEL  HOTEL  CO.  25 

capacity,  and  claimed  her  as  their  property.  The  intervening  party  are 
a  body  politic,  created  by  an  act  of  the  legislature  of  the  territory  of 
Alabama,  the  capital  stock  of  which  is  divided  into  shares  of  a  certain 
amount,  and  Smoot  the  defendant  owns  ten  of  them,  subscribed  for  by 
him. 

The  questions  to  be  decided  are  :  1.  Is  it  proper  for  our  courts  of 
justice  to  recognize,  in  their  judicial  proceedings,  the  company  as  a  cor- 
porate body?  2.  Can  the  shares  or  stock  of  any  individual  stock- 
holder be  legally  attached?1 

J.I.  The  existence  of  the  claimants  being  recognized  as  a  body 
corporate,  and  it  being  admitted  that  the  boat  attached  belongs  to 
them  as  a  part  of  their  common  stock,  it  is  clear  that  Smoot  does 
not  possess  such  certain  and  distinct  individual  property  in  it,  as  to 
make  his  interest  attachable.  The  estate  and__rigbts  of  a 
tioji-beloiig  so  completely  to  fh<*  h^y>  fhat 


compose  it  has  anyj-ight  of  owjiership  in  them,  nor  can  dispose  of  any 
pjirtQi_th£ni.  Civ.  Code,  88,  art.  11. 

The  court  is  of  opinion  that  the  district  court  erred  in  disallowing 
the  claim  of  the  company. 

It  is  therefore,  ordered,  adjudged  and  decreed  that  the  judgment  be 
annulled,  avoided  and  reversed,  and  that  the  attachment  of  the  plain- 
tiff and  appellant  be  quashed,  so  far  as  it  relates  to  the  said  steamboat 
the  Alabama,  and  that  she  be  released  therefrom. 

Livingston,  for  the  plaintiffs. 

Duncan,  for  the  claimants. 


PARKER  ET  ALS.  v.  BETHEL  HOTEL  CO.  ET  ALS. 

1896.     Supreme  Court  of  Tennessee? 

APPEAL  from  Chancery  Court  of  Maur}r  County. 

The  Bethel  Hotel  Co.  was  incorporated,  in  1880,  under  the  general 
corporations  act  of  1875  ;  and  erected  a  building  used  partly  for  a  hotel 
and  partly  for  other  purposes.  Sept.  1,  1885,  the  Bethel  Hotel  Co.  and 
Lucius  Frierson  conveyed  to  Mayes  &  Dodson  the  "  hotel  proper  part" 
of  the  building,  by  deed  signed  "  Bethel  Hotel  Compan}',  W.  D.  Bethel, 
President ;  Lucius  Frierson,  Secretary  and  Treasurer ;  and  Lucius  Frier- 
son."  This  conveyance  was  authorized  by  a  vote  of  the  stockholders 
at  the  last  meeting  ever  held  by  them.  No  business  seems  to  have  been 
transacted  by  the  corporation  after  this  time.  On  or  about  Aug.  28, 
1886,  Frierson  became  the  owner  of  all  the  stock  of  the  company  ;  but, 
both  before  and  after  that  date,  he  pledged  various  shares  as  security 
for  debts  of  his  which  are  still  outstanding.  The  stock  so  pledged  was 

1  The  opinion  relating  to  Point  I.  is  omitted. — ED. 

2  The  statement  of  facts  is  abridged   from  the  opinion,  contained  in  advance  sheets 
furnished  by  the  State  Reporter.    Portions  of  the  opinion  are  omitted.  —  ED. 


26  PARKER   V.   BETHEL   HOTEL  CO. 

not  transferred  on  the  books  of  the  company.  He  used  the  remainder 
of  the  building  as  his  own  up  to  Jan.  12, 1892,  when  he  executed  a  deed 
in  his  own  name,  purporting  to  convey  to  Webster,  in  trust,  the  real  es* 
tate  owned  by  the  Bethel  Hotel  Compaq*  and  certain  stock  in  that  com- 
pany. The  purpose  of  this  deed  was  to  secure  the  payment  of  certain 
debts  owing  by  Frierson,  preferring  one  creditor  and  providing  for  pro 
rata  payment  of  the  others.  Most  of  the  creditors  of  Frierson  who  had 
loaned  him  money  on  the  stock  of  the  Bethel  Hotel  Co.  were  not  pro- 
vided for  in  the  deed  of  trust.  Parker  et  als.,  creditors  of  Frierson  and 
pledgees  of  said  stock,  filed  a  bill  in  equity,  praying  (inter  alia)  to  annul 
the  trust  deed  to  Webster.  The  cause  was  heard  before  the  Chancellor 
of  Maury  County,  and  afterwards  before  the  Court  of  Chancery  Ap- 
peals, from  which  the  case  was  taken  to  the  Supreme  Court. 

G-  T.  Hughes,  Fussell  <&  Wilkes,  W.  S.  Fleming,  Jr.,  Granbery, 
&  Marks,  and  John  T.  Williamson,  for  Parker. 

Figuers  &  Padgett,  E.  H.  Hatcher,  and  W.  J.  Webster,  for  Hotel  Co. 

J.  C.  BRADFORD,  Sp.  J.     [After  fully  stating  the  facts  and  plead- 
ings.]    It  may  be  regarded  as  settled,  therefore,  that  the  legal  title  to 
the  property  conveyed  to  defendant,  Webster,  was,  at  the  date  of  that 
instrument,  in  the  Bethel  Hotel  Company,  where  it  had  been,  unques- 
tioned and  undisturbed,  since  1880,  the  }-ear  of  its  incorporation  and 
organization.     Defendants  insist  that,  although  Frierson  may  not  have 
been  invested  with  the  legal  title,  he,  nevertheless,  had  such  an  equi- 
table estate  and  interest  as  entitled  him  to  sell  and  dispose  of  the  prop- 
I  erty.     In  other  words,  that  he  was  the  real  owner  of  the  property,  and, 
'  as  such,  had  the  absolute  right  to  use  or  dispose  of  it. 

This  alleged  equitable  estate  was  not  the  creation  of  any  deed  or 
written  contract,  executed  by  the  Bethel  Hotel  Company,  or  of  any 
corporate  act  or  resolution  adopted  b}1  the  stockholders  or  directors, 
which  in  terms  referred  to  or  defined  it,  but  is  rather  the  result  and 
consequence  of  certain  facts  and  conditions,  the  existence  of  which  is 
affirmed  by  the  defendants. 

It  is  said  that  the  Bethel  Hotel  Compan}^  by  the  alienation  of  that 
part  of  its  property  built  for  and  adapted  to  the  uses  and  purposes  of 
a  hotel,  deprived  itself  of  the  means  of  conducting  a  hotel  business, 
and  that,  since  1885,  the  date  of  the  sale  to  Ma}-es  &  Dodson,  it  had 
ceased  to  exercise  its  corporate  franchises  ;  that  the  stockholders,  at 
the  meeting  held  in  September,  1885,  passed  a  resolution,  or  agreed 
among  themselves,  that  the  corporation  should  go  into  liquidation,  and 
that  Lucius  Frierson,  being  then  the  owner  of  all  the  capital  stock  of 
*  the  corporation,  became,  in  consequence,  the  equitable  owner  of  all  its 
/  property,  with  full  power  to  use  it  or  dispose  of  it  in  such  manner  as 
he  might  choose  to  do.  The  position  of  the  defendants  seems  to  be 
that  all  rights  of  the  corporation  in  the  property  were  extinguished, 
that  it  had  ceased  to  be  affected  with  any  corporate  uses,  and  that  it 
belonged  absolutely  to  Frierson. 

The  facts  affirmed  by  defendants  are  not  all  of  them  exactly  as 
found  by  the  Court  of  Chancery  Appeals.  It  is  true  that  the  corpora- 


PARKER  V.  BETHEL  HOTEL  CO.  27 

tion  sold  and  conveyed  the  hotel  part  of  its  building  to  Hayes  & 
Dodson,  retaining  only  the  stores  and  opera  house,  and  never  after- 
wards engaged  in  the  business  of  owning  and  operating  a  hotel. 
Lucius  Frierson  was  not  the  sole  stockholder  in  1885,  when  the  hotel 
was  sold,  and  did  not  become  such  until  August  28,  1886,  when  he 
purchased  the  Bethel  stock.  His  stock,  or  a  large  part  of  it,  at  that 
time  and  subsequently,  was  held  as  collateral  security  by  other  parties. 
It  is  not  true  that  a  resolution  was  ever  adopted  by  the  stockholders 
directing  the  liquidation  or  winding  up  of  the  affairs  of  the  corporation, 
or  that  they  were  ever  wound  up.  The  facts,  as  found  by  the  Court  of 
Chancery  Appeals  on  this  point,  are  stated  in  its  opinion  in  the  follow- 
ing words  :  "It  ma}' be  fairly  inferred,  though  it  does  not  distinctly 
appear  in  terms  in  the  proof,  that  when  the  deed  was  made  to  Muyes  & 
Dodson  it  was  then  understood  between  W.  D.  Bethel  and  Lucius 
Frierson,  they  then  owning  practically  all,  or  nearly  all,  of  the  stock, 
that  Bethel  should  take  the  proceeds  of  the  sale  to  Mayes  &  Dodson, 
amounting  to  822,500,  and  a  sufficient  amount,  in  addition,  from  Lu- 
cius Frierson,  personally,  to  make  $30,000,  and  for  this  he  would 
transfer  his  stock,  $61,000,  to  Frierson,  and  that  this  arrangement 
was  consummated,  so  far  as  it  could  be  done  without  direct  corporate 
action  of  the  corporation  itself,  by  the  paper  of  August  28,  1886,  made 
by  Bethel  to  Frierson,  and  this  is  what  the}'  understood  by  the  resolu- 
tion to  go  into  liquidation,  there  being  no  debts  due  by  the  corporation, 
and,  following  out  this  idea,  from  the  date  of  the  sale  to  Mayes  & 
Dodson,  Lucius  Frierson  proceeded  to  treat  the  property  as  his  own, 
on  the  idea  that  he  himself  constituted  the  corporation.  We  do  not 
think  that  he  entertained  the  idea  that  the  corporation  was  defunct, 
but  simply  that  he  was,  himself,  the  corporation,  and  could  do  what  he 
wished  with  the  assets." 

In  considering  the  position  of  the  defendants,  that  Frierson  became 
the  equitable  owner  of  the  assets  of  the  corporation,  we  must,  there- 
fore, leave  out  of  view  the  idea  that  there  was  an}*  corporate  action 
looking  to  a  dissolution  of  the  corporation  and  winding  up  of  its  affairs. 
Frierson's  estate  or  interest  in  the  property,  if  he  had  any,  rests  on 
the  postulate  that,  in  consequence  of  the  nonuser  of  its  franchises  and 
his  sole  proprietorship  of  all  its  capital  stock,  the  corporation  was  dis- 
solved, and  he  became  the  equitable  owner  of  all  its  property. 

A  corporation  can  be  dissolved,  and  its  existence  wholly  terminated, 
only  by  the  extinguishment  of  the  corporate  franchises  conferred  by 
the  State.  An  ordinary  business  corporation,  where  its  charter  speci- 
fies no  definite  time  for  its  continuance,  may  sell  its  property  and  wind 
up  its  affairs  whenever  a  majority  of  the  stockholders  may  deem  it  ad- 
visable (Treadwell  v.  Salisbury  Mfg.  Co.,  7  Gray,  393;  Black  v. 
Delaware  &  C.  Canal  Co.,  22  N.  J.  Eq.,  416)  ;  but  the  franchises 
conferred  upon  the  stockholders  by  the  State  are  not  extinguished  by 
the  cessation  from  business  thus  brought  about.  2  Morawetz  on  Corp., 
§  1004. 


28  PARKER  V.  BETHEL  HOTEL  CO. 

It  is  claimed  by  the  defendants  that  the  dissolution  of  the  corpora- 
tion was  effected  by  the  fact  that  Lucius  Frierson  became  the  sole 
owner  of  all  its  capital  stock.  Admitting  it  to  be  true  that  he  was  the 
owner  of  all  the  stock  of  the  corporation,  it  by  no  means  follows  that 
the  corporation  was  thereby  dissolved  and  forfeited  its  franchises.  On 
this  question  the  latest  text  writer  on  corporation  law  has  this  to  say, 
viz.  :  "  Contrary  to  early  opinion,  it  is  now  generally  held  that  the 
fact  that  all  the  shares  in  a  joint  stock  company  have  passed  into  the 
hands  of  two  members,  or  even  into  the  hands  of  a  single  person,  does 
not,  ipso  facto,  work  a  dissolution  of  the  corporation,  since  such  sole 
owner  may  so  dispose  of  the  shares,  as,  by  the  election  of  the  neces- 
sary directors  and  officers,  to  continue  the  corporate  existence."  5 
Thompson's  Commentaries  on  the  Law  of  Corporations,  Sec.  6653. 
And,  in  2  Morawetz  on  Corporations,  Sec.  1009,  it  is  said:  "It  is 
well  settled  that  all  the  shares  of  a  corporation  may  be  held  by  a 
single  person,  and  yet  the  corporation  continue  to  exist,  and,  if  the 
charter  or  by-laws  should  require  certain  acts  to  be  done  by  more  than 
one  shareholder,  the  sole  owner  may  transfer  a  portion  of  his  shares  to 
other  persons,  so  as  to  conform  to  the  letter  of  the  rule."  It  has  been 
held  that  a  corporation  which  has  sold  all  its  assets,  with  the  intention 
of  putting  an  end  to  its  business,  whose  officers  had  all  resigned,  and 
whose  stockholders  had  all  transferred  their  shares  to  a  single  person, 
was,  nevertheless,  not  dissolved,  and  that  its  existence  could  be  ter- 
minated only  b}'  judgment  of  forfeiture  or  by  surrender  accepted  by  the 
State.  Russell  v.  McLettan,  14  Pick.  (Mass.),  69,  70;  Newton  Mfg. 
Co.  v.  White,  42  Ga.,  148  ;  Baldwin  v.  Canfield,  26  Minn.,  43. 

The  dissolution  of  a  pecuniary  or  business  corporation  is  effected  in 
one  of  the  following  ways,  viz.  :  (1)  by  the  expiration  of  its  charter; 
(2)  by  Act  of  the  Legislature,  where  power  is  reserved  for  that  pur- 
pose, or  there  is  no  constitutional  inhibition;  (3)  by  surrender  of 
charter  which  is  accepted ;  (4)  b}"  forfeiture  of '  the  franchises  and 
judgment  of  dissolution  pronounced  by  a  Court  having  jurisdiction. 
2  Morawetz,  Sec.  1004  ;  Taylor  on  Private  Corporations,  Sec.  430.  It 
is  not  pretended  that  the  Bethel  Hotel  Compan}'  was  dissolved  in 
either  of  the  ways  indicated.  The  charter  of  the  corporation  has  not 
expired,  neither  has  it  been  repealed  by  the  Legislature,  or  been  sur- 
rendered to  the  State  by  its  members  or  stockholders.  It  ma}*  be  true 
that  there  was  a  nonuser  of  its  franchises  by  the  corporation  for  a 
period  of  seven  years  or  more,  occasioned  by  the  sale  of  the  only 
property  it  owned  which  could  have  been  used  for  hotel  purposes. 
U^ndoubtedjy_thejionu8er  of  its_franchjses  by  a_corporation_i8_gi'ounii 
for  dissolution  and  forfeiturgjonts  charter,  at  the  instange_of  the  Statej 
but  until^  sentence  of  dissolution  has  been~pronounced  bv  a  Court 
of  competent  jurit^ctiofl^hiajDroper  proceeding  instituted  fon,.tha 
purpose,  the  c~or]wratiQn3ffin^continue_to_e^is^  notwithstanding  its 
failure  to  use  its  franchises.  And  forfeiture  can  only  be  decreed  in  a 
proceeding  directly  instituted  for  the  purpose,  by  the  State  granting  it. 
Code  (M.  &  V.)  §  1712;  State  v.  Butler,  15  Lea,  104,  110;  Jersey 


PARKER  V.  BETHEL  HOTEL  CO.  29 

City  Gaslight  Co.  v.  Consumers'  Gas  Co.,  40  N.  J.  Eq.,  427;  Broad- 
well  v.  Merriti,  87  Mo.  95.     Until  dissolution  has  been  thus  judicially    \ 
pronounced,  neither  the  existence  of  the  corporation  or  its  title  to  its   / 
propert}1  can  be  questioned  collaterally. 

We  are  bound  to  conclude,  therefore,  that  the  Bethel  Hotel  Company 
was  not  dissolved,  or  its  franchises  extinguished  for  any  of  the  reasons 
alleged  by  the  defendants,  and  that  it  is  now  a  corporation  endued 
with  life,  with  authority  to  own  property  and  exercise  all  the  powers 
conferred  on  it  by  its  charter. 

Defendants  insist  that  the  alleged  equitable  estate  of  Lucius  Frier- 
son  in  the  property  of  the  Bethel  Hotel  Compan}%  did  not  depend 
alone  upon  the  dissolution  of  the  corporation,  but  resulted  also  from 
the  fact  that  he  was  the  sole  owner  of  all  its  capital  stock.  The  pro- 
position is,  that  if  one  person  owns  all  the  shares  of  stock  of  a  corpo- 
ration which  owes  no  debts,  he,  in  virtue  of  such  ownership,  becomes  the 
equitable  owner  of  all  its  property,  or,  at  least,  may  sell  and  dispose 
of  it  by  deed,  if  he  choose  to  do  so.  This  proposition  is  argued  by 
counsel  for  defendant  with  force  and  ability,  and  is  supported  by  some 
authority.  It  has  found  favor  with  the  Supreme  Court  of  Maryland 
(Swift  v.  Smith,  65  Md.,  428,  433);  but  the  decision  of  that  learned 
Court  is  opposed  by  the  current  of  authority,  and  seems  to  us  to  over- 
look and  ignore  certain  principles  that  are  fundamental. 

A  corporation  and  its  shareholders  are  distinct  legal  entities.  In 
Keith  v.  Clark,  4  Lea,  718,  this  Court  held  that,  notwithstanding  the 
State  owned  all  the  stock  in  the  Bank  of  Tennessee,  "  the  bank  and 
the  State  are  entirety  different  legal  entities,"  and,  in  Lillard  v.  Porter, 
2  Head,  175,  it  was  said,  "  stockholders  are  totally  distinct  from  the  cor- 
poration." Important  consequences  result  from  this  rule.  The  share- 
holders are  neither  responsible  for  the  debts  nor  for  the  torts  of  the 
corporation.  In  the  absence  of  special  circumstances,  the  shareholders 
cannot  be  parties,  either  plaintiffs  or  defendants,  in  actions  respecting 
corporate  rights,  nor  have  the}1  any  title  or  direct  interest  in  the  prop- 
erty of  the  corporation. 

"Shareholders,"  says  Thompson,  uare  not  joint  tenants  or  in  any 
other  sense  co  owners  of  the  corporate  property,  either  before  or  after 
its  dissolution.  The  title  to  it  rests  exclusively  in  the  legal  entity 
called  the  corporation.  A  share  of  the  capital  stock  mereh*  gives  the 
right  to  partake,  according  to  the  amount  put  into  the  fund,  of  the 
surplus  profits  of  the  corporation,  and  ultimately,  on  the  dissolution  of 
it,  of  so  much  of  the  fund  thus  created  as  remains  unimpaired  and  is 
not  liable  for  debts  of  the  corporation."  Commentaries  on  the  Law  of 
Corporations,  Sec.  1071.  As  the  shareholders  have  no  direct  interest 
in  the  corporate  property,  they  cannot  convey  the  real  estate  of  the 
corporation,  though  all  join  in  the  deed. 

In  Wheelock  v.  Moulton,  15  Vt.  519,  Redfield,  J.,  stated  the  reasons 
for  the  rule  in  his  usual  clear  and  accurate  st3-le.  In  that  case,  Moul- 
ton  and  Hutchinson,  sole  proprietors  and  owners  of  all  the  stock  of  a 
corporation,  conveyed  its  real  estate,  in  mortgage,  to  secure  the  repay- 


30  PARKER  V.   BETHEL   HOTEL  CO. 

ment  of  money  borrowed  of  the  plaintiff,  Wheelock.  He  brought  suit 
to  enforce  his  mortgage.  Judge  Redfield  said :  "  The  fact  that  the 
signers  of  this  deed  owned  the  whole  of  the  shares  will  make  no  differ- 
ence in  regard  to  the  necessity  of  a  vote  of  the  corporation,  in  order 
to  convey  the  land.  The  title  to  the  land  was  in  the  corporation,  not 
in  the  individual  shareholders.  The  deed  of  one,  or  of  any  number  of 
the  stockholders,  will  not  affect  the  title  to  the  land.  The  share  owners 
are  not  tenants  in  common  of  the  land.  They  have  no  title  whatever 
to  any  of  the  property  of  the  corporation.  It  is  true  that  one  who 
owned  all  the  shares  might  control  the  corporation,  and  so  he  could  if 
he  owned  a  uiajoritj*  of  the  shares ;  but  he  could,  in  either  case,  do  it 
only  by  a  vote  of  the  corporation,  at  a  meeting  held  in  strict  accord- 
ance with  the  statutes  of  the  corporation." 

And  in  Humphreys  v.  McKissick,  140  U.  S.  304,  Mr.  Justice  Field, 
discussing  the  same  question,  said  :  "The  property  of  a  corporation  is 
not  subject  to  the  control  of  individual  members,  whether  acting  sep- 
arately or  jointly.  They  can  neither  incumber  nor  transfer  that  prop- 
erty, nor  authorize  others  to  do  so.  The  corporation  —  the  artificial 
being  created  —  holds  the  propertj-,  and  alone  can  mortgage  or  trans- 
fer it,  and  the  corporation  acts  only  through  its  officers,  subject  to  the 
conditions  prescribed  by  law." 

A  very  instructive  case  on  this  question  is  Baldwin  v.  Canfield,  26 
Minn.,  43.  The  facts  of  that  case  were  veiy  similar  to  those  of  this 
case,  and  the  direct  question  now  under  consideration  was  passed  upon. 
The  opinion  of  the  court  was  in  accord  with  the  cases  above  cited. 
See  also  Button  v.  Hoffman^  61  Wis.,  20. 

We  are  thus  led,  both  by  reason  and  authority,  to  the  conclusion 
that  Lucius  Frierson,  as  sole  stockholder  of  the  Bethel  Hotel  Com- 
pany, had  no  title,  legal  or  equitable,  to  its  property.  The  title  to  the 
property  was  in  the  Bethel  Hotel  Compam*,  and  could  onlj'  be  con- 
ve}'ed  b}'  it.  The  conve3-ance  of  its  real  estate  is  one  of  the  most 
solemn  acts  of  a  corporation,  and  it  can  only  be  done  in  pursuance  of 
a  vote  of  the  corporation,  and  by  deed  executed  in  the  form  and  mode 
prescribed  by  law.  Thompson's  Commentaries  on  the  Law  of  Cor- 
porations, Sec.  5096.  At  common  law  a  corporation  could  not  exe- 
cute a  deed  to  realty  except  under  seal ;  and  the  general  corporations 
Act  of  1875,  under  which  the  Bethel  Hotel  Company  was  organized, 
provides  that,  if  the  corporation  have  no  seal,  it  shall  be  bound  by  the 
signature  of  its  name  by  a  duly  authorized  officer. 

To  have  made  a  valid  convej'ance  of  the  real  estate  of  the  compam*, 
it  was  necessaiy,  therefore,  that  the  deed  should  have  been  executed 
in  the  name  of  the  corporation,  under  seal,  if  it  had  one,  and,  if  not, 
its  name  should  have  been  signed  b}-  an  agent  duty  authorized  by  its 
governing  agency,  its  board  of  directors.  Garrett  v.  Belmont  Land 
Co ,  94  Tenn.,  460.  As  we  have  seen,  nothing  of  this  kind  was  done. 
The  deed  to  defendant,  Webster,  was  executed  by  Lucius  Frierson,  in 
his  own  name  find  under  his  own  signature.  The  Bethel  Hotel  Com- 
pany, although  it  owned  the  property,  was  in  no  sense  a  party  to  it. 


PARKER  V.  BETHEL  HOTEL  CO.  31 

For  this  and  other  reasons  given,  the  deed  of  Lucius  Frierson,  convey- 
ing the  real  estate  of  the  Bethel  Hotel  Company  to  defendant,  W.  J. 
Webster,  was  void,  and  conveyed  to  him  no  title  or  interest  therein. 

We  have  assumed  as  a  fact,  in  the  preceding  discussion,  that  Lucius 
Frierson  was,  in  truth,  the  sole  owner  of  all  the  shares  of  stock  of  the 
Bethel  Hotel  Company  at  the  date  he  executed  the  deed  to  Webster. 
But  was  he? 

[The  Court  then  held  that  the  pledgees  of  the  stock  acquired  title 
thereto,  even  though  they  took  with  notice  of  a  by-law  of  the  company 
that  no  transfer  should  be  effectual  unless  made  on  the  books  of  the 
company.] 


BUNDY  v.   OPHIR  IRON   CO. 

1882.     38  Ohio  State,  3Q0.1 

THE  Ophir  Iron  Company  was  a  corporation  consisting  of  ten  stock- 
holders, including  the  plaintiff,  Bund}'. 

Bundy  indorsed  notes  of  the  Company  upon  an  agreement  that  he 
should  be  protected  by  a  mortgage  upon  the  Company's  real  estate. 

The  mortgage,  instead  of  being  executed  in  the  name  of  the  Com- 
pany as  grantor,  was,  by  mistake,  executed  in  the  name  of  the  other 
nine  stockholders,  thus  :  — 

"  Know  all  men  by  these  presents,  that  Robert  Hoop"  [and  eight 
others  then  named],  "the  grantors  in  this  instrument,  and  who  together 
with  H.  S.  Bundy  are  the  sole  members  and  stockholders  in  the  Ophir 
Iron  Compan\T,  a  corporation  duly  organized,  ...  in  consideration  of 
ten  thousand  dollars  paid  by  said  H.  S.  Bundy  to  said  Ophir  Iron 
Company,  ...  do  hereby  grant  ...  to  the  said  H.  S.  Bundy,  .  .  . 
all  the  right,  title,  interest  and  estate,  legal  and  equitable,  of  the  afore- 
said grantors  in  and  to  the  following  lands  and  tenements  of  the  said 
Ophir  Iron  Company,  .  .  ." 

[Then  follows  the  condition  that  the  deed  shall  be  void  if  the  Com- 
pany shall  pay  the  notes  indorsed  by  Bundy,  and  shall  save  Bundy 
harmless.] 

This  mortgage  deed  is  signed  with  the  individual  names  and  sealed 
with  the  individual  seals  of  the  nine  persons  named  as  grantors,  by 
whom,  as  grantors,  it  is  also  acknowledged  as  their  voluntary  act  and 
deed.  It  was  recorded  Dec.  5,  1874. 

On  April  17,  1875,  a  second  mortgage,  on  the  same  premises,  was 
duly  executed  b}r  the  corporation,  through  its  president,  to  secure  all 
its  creditors  except  Bundy.  The  latter  mortgage  recites  that  it  is  made 
"  subject,  however,  to  a  mortgage  in  favor  of  Hezekiah  S.  Bundj*,  for 
the  sum  of  $10,000,  of  record  in  said  County,"  &c. 

1  Statement  abridged.     Arguments  and  part  of  opinion  omitted.   -Eu. 


32  BUNDY  V.   OPHIR  IRON   CO. 

In  Ma}-,  1875,  various  creditors  of  the  corporation  (who  were  also 
mortgagees  in  the  second  mortgage)  obtained  judgments  against  it, 
which  took  effect  as  liens  upon  the  lands  described  in  the  mortgages. 

In  August,  1875,  Bund}*,  having  paid  the  notes  which  he  had 
indorsed,  commenced  an  action  to  foreclose  his  mortgage,  making 
various  creditors  of  the  corporation  parties.  The  District  Court  found 
that  the  mortgage  of  Bundy  was  invalid  as  against  the  subsequent 
creditors  of  the  Company. 

Bundy  brought  error. 

W.  W.  Johnson,  with  whom  were  John  T.  Moore,  Porter  Du 
Hadway,  and  J.  B.  Foraker,  for  plaintiff  in  error. 

Wilby  &  Wold,  and  C.  A.  Atkinson,  for  certain  creditors. 

WHITE,  J.  The  controversy  in  this  case  is  between  Bundy,  claiming 
as  first  mortgagee,  subsequent  judgment  creditors,  and  creditors  claim- 
ing under  the  second  mortgage. 

Two  questions  arise  for  consideration :  (1)  Whether  the  execution 
and  record  of  the  mortgage  of  December  5,  1874,  to  Bundy,  give  him 
priority?  and,  (2)  If  not,  does  the  recognition  of  the  first  mortgage  in 
the  second,  of  April  17,  1875,  have  that  effect? 

As  to  the  first  question :  The  consideration  upon  which  Bundy 
indorsed  the  notes  as  surety  of  the  corporation,  was  that  the  latter 
should  give  him  a  mortgage  upon  its  property,  conditioned  that  it  would 
pay  the  notes  at  maturity,  and  save  him  harmless  on  account  of  his 
indorsements.  The  execution  by  the  stockholders  of  the  first  mort- 
gage was  the  attempted  fulfilment  of  the  agreement  on  the  part  of  the 
corporation. 

TheOphir  Iron  Company  was  incorporated  under  the  act  of  April  12, 
1858,  providing  for  the  creation  and  regulation  of  manufacturing  com- 
panies. S.  &  C.  301,  304.  Under  that  act  the  directors  of  the  com- 
pany are  required  to  be  stockholders ;  and  while  it  is  declared  "  the 
directors  shall  have  the  general  management  of  the  affairs  of  the  com- 
pany," yet  they  are  made  "  subject  alwa}"8  to  the  control  of  the  stock- 
holders "  in  reference  to  such  management. 

The  mortgage  to  Bundy  now  in  question,  not  being  made  in  the  name 
of  the  corporation,  cannot,  as  against  it,  be  regarded  as  a  legal  mort- 
gage ;  but  it  is  a  good,  equitable  mortgage  against  the  corporation. 
And  if  such  direction  were  necessary,  it  might  be  considered  as  equiva- 
lent to  a  direction  by  the  stockholders  to  the  proper  officers  to  make  a 
mortgage  in  the  name  of  the  corporation  to  Bundy.  But  such  direc- 
tion was  not  necessary  from  the  stockholders.  The  directors,  under 
the  agreement  by  which  they  obtained  Bundy's  indorsements  of  the 
notes  of  the  corporation,  were  bound  to  secure  him  by  the  mortgage  of 
the  corporation.  This  they  failed  to  do,  by  sheer  mistake,  in  the  form 
of  executing  the  mortgage,  which  it  was  competent  for  a  court  of 
equity  to  correct ;  and  which  it  was  their  duty  to  correct  without  the 
action  of  the  court  Clayton  v.  Freet,  10  Ohio  St.  544. 

If  it  were  not  for  our  statute  on  the  subject  of  mortgages,  this  equi- 


BUTTON   V.   HOFFMAN.  33 

table  mortgage  would  prevail  over  all  lien-holders  and  other  claimants, 
except  bonafide  purchasers,  for  value.  But  it  has  been  held,  in  a  long 
series  of  decisions,  that  a  mortgage  has  no  effect,  under  the  statute, 
either  in  law  or  equity,  as  against  subsequently  acquired  liens,  until  its 
execution  according  to  the  statute,  and  its  delivery  to  the  recorder  of 
the  proper  county  for  record.  Strung  v.  Beach,  11  Ohio  St.  283; 
Bercaw  v.  Cockerill,  20  Id.  163. 

But  such  execution  and  delivery  for  record  are  not  required  as 
between  the  original  parties  or  their  heirs.  Bloom  v.  Nogyle,  4  Ohio 
St.  45  ;  Sidle  v.  Maxwell,  Id.  236. 

The  second  question  is :  Does  the  recognition  of  the  first  mortgage 
in  the  second  have  the  effect  to  give  it  priorit}'? 

We  think  this  question  must  be  answered  in  the  affirmative.  The 
second  mortgage  was  executed  in  due  form  by  the  corporation,  and 
was  made  expressly  subject  to  the  mortgage  to  Bundy.  Hence,  all 
subsequently  acquired  liens  that  are  subject  to  the  second  mortgage  are 
necessarily  also  subject  to  the  first.  Coe  v.  Hailroad  Co.,  10  Ohio  St. 
374  ;  Bercaw  v.  Cockerill,  20  Id.  166. 

It  is,  however,  claimed  on  behalf  of  some  of  the  judgment  creditors 
that  the  second  mortgage  was  not  accepted  by  the  mortgagees. 

[After  overruling  this  objection,  the  opinion  proceeds  as  follows]  : 

Whether  Bundy  does  not  stand  in  such  relation  to  the  second  mort- 
gage, as  to  entitle  him  to  insist  upon  it,  both  as  against  the  corporation 
and  the  subsequent  judgment  creditors,  without  reference  to  its  accept- 
ance, maj-  admit  of  question.  But  it  is  a  question  that  need  not  now 
be  considered.  Upon  the  case  as  made  in  the  record,  the  court  erred 
in  denying  to  Bundy  the  priority  to  which  he  was  entitled.  The  judg- 
ment must  therefore  be  reversed  ;  and  the  cause  is  remanded  for  further 
proceedings.  Judgment  accordingly. 


BUTTON  v.   HOFFMAN. 

1884.     61  Wisconsin,  20. 

APPEAL  from  the  Circuit  Court  for  Jackson  Count}*. 

Replevin.  The  facts  sufficiently  appear  from  the  opinion.  The 
defendant  appealed  from  a  judgment  in  favor  of  the  plaintiff. 

C.  J.  Ainsworth  and  S.  U.  Pinney,  for  appellant. 

Carl  C.  Pope,  for  respondent. 

ORTON,  J.  This  is  an  action  of  replevin  in  which  the  title  of  the 
plaintiff  to  the  property  was  put  in  issue  by  the  answer. 

In  his  instructions  to  the  jury  the  learned  judge  of  the  Circuit  Court 
said :  "  I  think  the  testimony  is  that  the  plaintiff  had  the  title  to  the 
property."  The  evidence  of  the  plaintiffs  title  was  that  the  property 

3 


34  BUTTON   V.    HOFFMAN. 

belonged  to  a  corporation  known  as  '*  The.  Hayden  &  Smith  Manufac- 
turing Company,"  and  that  he  purchased  and  became  the  sole  owner  of 
all  of  the  capital  stock  of  said  corporation.  As  the  plaintiff  in  his 
testimony  expressed  it,  "  I  bought  all  the  stock.  I  own  all  the  stock 
now.  I  became  the  absolute  owner  of  the  mill.  It  belonged  at  that 
time  to  the  company,  and  I  am  the  company."  There  was  no  other 
evidence  of  the  condition  of  the  corporation  at  the  time.  Is  this  suf- 
ficient evidence  of  the  plaintiff's  title?  We  think  not.  The  learned 
counsel  of  the  respondent  in  his  brief  says:  "The  property  had  for- 
merly belonged  to  the  Hayden  &  Smith  Manufacturing  Company,  but 
the  respondent  had  purchased  and  become  the  owner  of  all  the  stock  of 
the  company,  and  thus  became  its  sole  owner." 

From  the  very  nature  of  a  private  business  corporation,  or  indeed  of 
an}'  corporation,  the  stockholders  are  not  the  private  and  joint  owners 
of  its  property.  The  corporation  is  the  real  though  artificial  person 
substituted  for  the  natural  persons  who  procured  its  creation  and  have 
pecuniaiy  interests  in  it,  in  which  all  its  property  is  vested,  and  by 
which  it  is  controlled,  managed  and  disposed  of.  It  must  purchase, 
hold,  grant,  sell  and  convey  the  corporate  property,  and  do  business, 
sue  and  be  sued,  plead  and  be  impleaded,  for  corporate  purposes,  by 
its  corporate  name.  The  corporation  must  do  its  business  in  a  certain 
way,  and  by  its  regularly  appointed  officers  and  agents,  whose  acts  are 
those  of  the  corporation  only  as  they  are  within  the  powers  and  pur- 
poses of  the  corporation.  In  an  ordinary  copartnership  the  members 
of  it  act  as  natural  persons  and  as  agents  for  each  other,  and  with  un- 
limited liability.  But  not  so  with  a  corporation  ;  its  members,  as  natural 
persons,  are  merged  in  the  corporate  identity.  Aug.  &  A.  Corp. 
§§  40,  46,  100,  591,  595.  A  share  of  the  capital  stock  of  a  corpora- 
tion is  defined  to  be  a  right  to  partake,  according  to  the  amount  sub- 
scribed, of  the  surplus  profits  obtained  from  the  use  and  disposal  of  the 
capital  stock  of  the  company  to  those  purposes  for  which  the  company 
is  constituted.  Ang.  &  A.  Corp.  §  557.  The  corporation  is  the  trustee 
for  the  management  of  the  property,  and  the  stockholders  are  the  mere 
cestui  que  trusts.  Gray  v.  Portland  Bank,  3  Mass.  365  ;  Eidman  \. 
Bowman,  58  Ills.  444  ;  s.  c.  11  Am.  Rep.  90;  4  Am.  Corp.  Cas.  350. 
The  right  of  alienation  or  assignment  of  the  property  is  in  the  corpora- 
tion alone,  and  this  right  is  not  affected  by  making  the  stockholders  indi- 
vidually liable  for  the  corporate  d"bts.  Ang.  &  A.  Corp.  §  191  ;  Pope 
v.  Brandon,  2  Stew.  (Ala.)  401  ;  Whitwell  v.  Warner,  20  Vt.  444.  The 
property  of  the  corporation  is  the  mere  instrument  whereby  the  stock 
is  made  to  produce  the  profits,  which  are  the  dividends  to  be  declared 
from  time  to  time  by  corporate  authority  for  the  benefit  of  the  stock- 
holders, while  the  property  itself,  which  produces  them,  continues  to 
belong  to  the  corporation.  Bradley  v.  Holdsworth,  3  M.  &  W.  422  ; 
Waltham  Bank  v.  Waltham,  10  Met.  334  ;  Tippets  v.  Walker,  4  Mass. 
595.  The  corporation  holds  its  property  only  for  the  purposes  for 
which  it  was  permitted  to  acquire  it,  and  even  the  corporation  cannot 


BUTTON    V.   HOFFMAN.  35 

divert  it  from  such  use,  and  a  shareholder  has  no  legal  right  to  it,  or 
the  profits  arising  therefrom,   until  a  lawful  division  is   made  by  the  I 
directors  or  other  proper  officers  of  the  corporation,  or  by  judicial  / 
determination.     Aug.  &  A.  Corp.   §§    160,  190,  557;  Hyatt  v.  Allen,  ' 
56  N.  Y.  553 ;  s.  c.   15  Am.  Rep.  449  ;  4  Am.  Corp.  Cas.  624.      A 
conveyance  of  all  the  capital  stock  to  a  purchaser  gives  to  such  pur- 
chaser only  an  equitable  interest  in  the  property  to  carry  on  business 
under  the  act  of  incorporation  and  in  the  corporate  name,  and  the  cor- 
poration   is   still   the   legal   owner   of  the   same.     Wilde  v.   Jenkins, 
4  Paige,  481.     A  legal  distribution  of  the  property  after  a  dissolution 
of  the  corporation  and  settlement  of  its  affairs  is  the  inception  of  any 
title   of  a   stockholder   to  it,    although  he   be   the   sole   stockholder. 
Aug.  &  A.  Corp.  §  779a. 

These  general  principles  sufficiently  establish  the  doctrine  that  the 
owner  of  all  the  capital  stock  of  a  corporation  does  not  therefore  own 
its  property,  or  any  of  it,  and  does  not  himself  become  the  corporation, 
as  a  natural  person,  to  own  its  property  and  do  its  business  in  his  own 
name.  While  the  corporation  exists  he  is  a  mere  stockholder  of  it, 
and  nothing  else.  The  consequences  of  a  violation  of  these  prin- 
ciples^ won  Id  be  that  the  stockholders  would  be  the  private  andjoint- 
owjierFofthe  corporate  property^  and  they  could  assume  the  powers  of 
the  corporatiorijand  supersede  its  functions  in  its  use  and  disposition 
for_their  ownbenefit  without  personal  liability,  and  thus  destroy_the 
corporation,  terminate  the  business  and  defraud  its  jgreditors.  The 
stockholders  would  be  the  owners  of  the  property,  and  at  the  same 
time  it  would  belong  to  the  corporation.  One  stockholder  owning  the 
whole  capital  stock  could  of  course  do  what  several  stockholders  could 
lawfully  do.  It  is  said  in  Utica  \.Churchill,  33  N.  Y.  161,  "the 
interest  of  a  stockholder  is  of  a  collateral  nature,  and  is  not  the  interest 
of  an  owner ; "  and  in  Hyatt  \.  Allen,  supra,  that  "  a  shareholder  in  a 
corporation  has  no  legal  title  to  its  property  or  profits  until  a  division 
is  made."  In  Winona,  &c.  R.  Co.  v.  St.  P.,  &c.  R.  Co.,  23  Minn. 
359,  it  is  held  that  the  corporation  is  still  the  absolute  owner,  and  • 
vested  with  the  legal  title  of  the  propert}',  and  the  real  party  in  interest, 
although  another  party  has  become  the  owner  of  the  sole  beneficial 
interest  in  its  rights,  property  and  immunities.  In  Baldwin  v.  Can- 
field,  26  Minn.  43,  it  was  held  that  the  sole  owner  of  the  stock  did  not 
own  the  land  of  the  corporation  so  as  to  convey  the  same.  In  Bartlett 
v.  Bi-ickett,  14  Allen,  62,  an  action  of  replevin  was  brought  by  A.,  B. 
and  C.,  as  the  "Trustees  of  the  Ministerial  Fund  in  the  North  Parish 
in  Haverhill,"  which  was  the  corporate  name.  In  portions  of  the  writ 
the  plaintiffs  were  referred  to  as  "the  said  trustees"  and  "  the  said 
plaintiffs."  In  the  bond,  "A.,  B.  and  C. ,  trustees  as  aforesaid," 
became  bound,  and  the  officer  in  his  return,  certified  that  he  had  taken 
a  bond  "  from  the  within-named  A.,  B.  and  C.,"  and  the  property 
was  receipted  by  "A.,  B.  and  C.,  plaintiffs."  It  was  held  that  the 
action  was  not  by  the  corporation,  as  it  should  have  been,  and  judg- 


36  BUTTON   V.    HOFFMAN. 

ment  was  rendered  for  the  defendant.  It  is  said  in  Van  Allen  v. 
Assessors,  3  Wall.  584,  "  the  corporation  is  the  legal  owner  of  all  the 
property  of  the  bank,  both  real  and  personal."  In  Wilde  v.  Jenkins, 
supra,  where  a  copartnership  bought  all  the  property  and  effects, 
together  with  the  franchises  of  a  corporation,  and  elected  themselves 
trustees  of  the  corporation,  it  was  held  that  the  corporation  was  not 
dissolved,  and  that  the  legal  title  to  the  real  and  personal  property 
was  still  in  the  corporation  for  their  benefit.  In  Mlckles  v.  R.  C. 
Bank,  11  Paige,  118,  it  was  held  that  although  a  corporation  was 
deemed  to  have  surrendered  its  charter  for  non-user,  it  was  not  dis- 
solved, and  would  not  be  until  its  dissolution  was  judicially  declared, 
and  that  until  then  its  property  could  be  taken  and  sold  by  its  judg- 
ment creditors.  In  Bennett  v.  Am.  Art  Union,  5  Sandf.  614,  it  was 
held  that  "  as  a  general  rule,  the  whole  title,  legal  and  equitable  (to  its 
property),  is  vested  in  the  corporation  itself,"  and  that  the  individual 
members  have  no  other  or  greater  interest  in  it  than  is  expressl}'  given 
to  them  b}*  the  charter,  and  the  prayer  of  the  complainant  as  a  share- 
holder in  the  Art  Union,  for  an  injunction  against  a  certain  disposition 
of  its  property  was  denied,  because  he  had  no  interest  in  it.  See  also 
Goodwin  v.  Hardy,  57  Me.  143. 

It  is  true  that  none  of  the  above  cases  are  precisely  parallel  with  the 
present  case  in  facts,  but  they  are  sufficiently  analogous  to  be  authority 
upon  the  principle  that  the  plaintiff,  as  the  sole  stockholder  of  the  cor- 
poration, is  not  the  legal  owner  of  its  property.  He  ma}7  have  an 
equitable  interest  in  it,  but  in  this  action  he  must  show  a  legal  title  to 
the  property  in  himself  in  order  to  recover,  and  he  has  shown  that 
such  title  is  in  another  person.  Timp  v.  Dockham,  32  Wis.  14G  ; 
Sensenbrenner  v.  Mathews,  48  Wis.  250 ;  s.  c.  33  Am.  Rep.  809.  In 
analogy  to  the  above  principle  it  was  held  in  Murphy  v.  Ifanrahan,  50 
Wis.  485,  that  the  sole  heirs  of  an  estate  did  not  have  such  a  legal 
title  to  a  promissorj*  note  given  to  their  father  as  would  entitle  them  to 
sue  the  maker  upon  it,  because  the  title  to  it  was  in  the  administrator, 
and  they  could  obtain  the  title  only  by  administration  and  distribution 
according  to  law.  The  heirs  in  that  case  certain!}'  had  as  much  equi- 
table interest  in  that  note  as  this  plaintiff  has  in  the  property  in  con- 
troversy. The  want  of  title  to  the  property  being  fatal  to  the  plaintiffs 
recovery  in  the  action  between  the  present  parties,  other  alleged  errors 
will  not  be  considered. 

BY  THE  COURT.  The  judgment  of  the  Circuit  Court  is  reversed,  and 
the  cause  remanded  for  a  new  trial. 

Reversed  and  remanded. 


GALLAGHER   V.    GERMANIA   BREWING   CO.  37 

GALLAGHER  v.  GERMANIA  BREWING  CO. 

1893.     53  Minnesota,  214.1 

Freeman  P.  Lane,  and  Wm.  If.  Briggs,  for  appellant. 

Gretchen  &  McHugh,  for  respondents. 

MITCHELL,  J.  The  plaintiff,  as  assignee  of  one  Westphal,  under  a 
general  assignment  for  the  benefit  of  creditors,  brought  this  action  to 
recover  for  goods  sold  and  delivered  b}*  his  assignor  to  the  defendant 
corporation.  Barge  &  Vander  Horck  intervened,  and  set  up  in  their 
complaint  that  they  owned,  and  for  nearly  two  years  had  owned  (each 
one  half),  all  the  capital  stock  of  the  defendant,  no  other  person  but 
themselves  having  any  interest  in  the  stock  or  property  of  the  corpora- 
tion ;  that  each  of  them  had  a  valid  and  unsatisfied  judgment  against 
Westphal  upon  a  cause  of  action  which  accrued  before  the  assignment 
to  plaintiff ;  that  Westphal  was,  and  for  over  two  years  had  been, 
utterly  insolvent ;  and  that  his  estate,  of  which  plaintiff  is  the  assignee, 
was  so  hopelessly  insolvent  that  it  was  insufficient  to  pay  even  the 
expenses  of  administering  the  assignment.  The  relief  sought  was  that 
their  claims  against  Westphal  might  be  allowed,  in  equal  amounts,  as 
equitable  set-offs  to  the  claim  of  the  plaintiff  against  the  defendant  cor- 
poration. From  an  order  overruling  a  demurrer  to  the'  complaint,  the 
plaintiff  appeals,  his  contention  being,  First,  that  Barge  &  Vander 
Horck  had  no  such  interest  in  the  litigation  as  to  entitle  them  to  inter- 
vene ;  second,  that  their  claims  cannot  be  set  off  against  a  claim 
against  the  corporation,  because  a  corporation  is  a  legal  entity,  entirely 
distinct  from  its  stockholders.  These  two  propositions  amount  really 
to  the  same  thing,  for,  if  Barge  &  Vander  Horck  cannot  set  off  their 
claims  against  that  of  plaintiff  against  the  corporation,  they  have  no 
such  interest  in  the  subject  of  litigation  as  would  entitle  them  to  inter- 
vene ;  on  the  other  hand,  if  their  claims  are  proper,  equitable  set-offs, 
their  right  to  intervene  for  the  purpose  of  setting  them  up  is  very  clear. 
The  case  is  certainly  a  novel  one,  for  we  doubt  whether  an  instance 
can  be  found  in  the  books  where  stockholders  ever  attempted  to  set  up ' 
their  several  equities  by  way  of  set-off  to  claims  against  the  corpora- 
tion. Of  course,  the  want  of  a  precedent  is  by  no  means  controlling 
with  courts,  especially  in  administering  equitable  relief;  but  it  would 
seem  that,  if  the  relief  here  asked  was  consistent  with  legal  or  equita- 
ble principles,  some  case  would  be  found  where  it  had  been  granted. 
The  facts  of  the  present  case  appeal  to  a  natural  sense  of  justice,  for 
while,  by  fiction  of  law,  a  corporation  is  a  distinct  entity,  yet  in  reality 
it  is  an  association  of  persons  who  are  in  fact  the  beneficial  owners  of 
all  the  corporate  property.  Hence,  if  interveners  cannot  set  off  their 
claims,  the  practical  result  is  that  Westphal's  estate  will  collect  its 
entire  claim  out  of  what  is  really  their  property,  while  the  estate  is  at 

1  Statement  and  arguments  omitted.  —  ED. 


38          GALLAGHER  V.  GEBMAXIA  BREWING  CO. 

the  same  time  indebted  to  them  on  claims  of  greater  amount,  which 
they  will  wholly  lose  because  of  Westphal's  insolvency  ;  but,  as  has 
been  often  said,  hard  cases  are  liable  to  make  bad  law. 

The  right  of  equitable  set-off  is,  of  course,  not  derived  from,  or 
dependent  upon,  statute,  but  rests  upon  a  distinctly  equitable  doctrine, 
which  courts  of  equity  have  applied  on  certain  well-recognized  equitable 
grounds,  the  object  being  to  effect  a  clear  equity  and  prevent  irremedi- 
able injustice  ;  and  it  may  be  stated  as  a  general  rule  that,  whenever 
necessary  to  accomplish  that  end,  the  courts  will  permit  an  equitable 
set-off,  although  the  debts  accrued  in  different  rights  ;  as,  for  example, 
by  allowing  a  separate  debt  to  be  set  off  against  a  joint  debt,  or, 
conversely,  a  joint  debt  against  a  separate  debt.  They  will  also  dis- 
regard the  nominal  parties  to  the  record,  and  consider  the  real  parties 
in  interest ;  as,  for  example,  when  the  assignor  of  a  chose  in  action 
sues  for  the  benefit  of  the  assignee,  or  a  trustee  for  the  benefit  of 
the  cestui  que  trust.  Hence,  had  the  plaintiff's  claim  been  a  joint 
one  against  the  interveners,  there  would  have  been  no  doubt  of 
their  right  to  set  off  their  separate  claims  against  it,  for  insol- 
vency is  well  recognized  as  a  distinct  equitable  ground  for  allowing 
such  a  set-off.  But  such  a  case  is  not  analogous  to  the  present.  To 
allow  the  set-off  here,  it  is  necessary  to  wholly  ignore  the  legal  doc- 
trine, or  fiction,  whichever  you  may  call  it,  that  a  corporation  is  an 
entity  separate  and  distinct  from  the  body  of  its  stockholders,  and  to 
treat  it  as  a  mere  association  of  individuals  who  are  the  real  parties  in 
interest.  In  dealing  with  the  rights  of  creditors,  and  the  obligations 
existing  between  a  corporation  and  its  shareholders  by  reason  of  their 
contract  of  membership,  undoubtedly  the  courts  often  find  it  necessary 
to  consider  the  real  parties  in  interest  as  the  individual  shareholders ; 
but  it  may  be  laid  down  as  a  rule  that,  except  in  such  cases,  it  has  been 
found  absolutely  essential,  for  the  administration  of  justice,  to  treat  a 
^corporation  as  a  collective  entity,  without  regard  to  its  individual  share- 
holders. In  no  other  way  can  the  title  to  corporate  property  be  kept 
free  from  complication  and  uncertainty.  The  transferable  nature  of 
stock  in  a  corporation  is  also  a  good  reason  why  the  theory  of  a  cor- 
porate entity  should  be  preserved,  and  why  it  is  necessary  to  discrim- 
inate sharply  between  corporate  rights  and  obligations  and  those  of 
shareholders  personal!}'.  If  the  rights  or  liabilities  of  a  corporation 
could  be  affected  by  the  acts  of  the  stockholders,  except  when  acting 
in  the  corporate  name,  or  if  shareholders  could  set  up  their  several 
equities  against  persons  having  claims  against  the  corporation,  or,  con- 
versely, if  claims  in  favor  of  the  corporation  could  be  set  off  against 
claims  against  individual  stockholders,  it  can  easily  be  seen  into  what 
confusion  and  chaos  corporate  affairs  would  inevitably  fall.  Inasmuch 
as  the  two  interveners  own  all  the  stock  of  this  corporation,  the  facts 
of  this  case  seem  comparatively  free  from  embarrassments,  and  the 
contention  of  respondent  quite  plausible.  But,  suppose  there  were 
fifty  other  stockholders  (which  would  not  alter  the  principle),  what 


WAKING   V.   CATAWBA   CO.  39 

would  be  the  result?  Could  interveners  then  interpose  their  claims  as 
set-offs,  and,  if  so,  could  they  do  so  to  the  full  amount  of  their  claims, 
or  only  in  the  proportion  which  their  shares  bore  to  the  whole  capital 
stock?  And,  if  the  former,  would  the}'  have  a  claim  for  the  excess 
against  the  corporation,  or  a  right  to  call  on  the  other  stockholders  for 
contribution  ? 

Again,  the  right  of  set-off,  if  any  exists,  must  be  mutual.  Hence,  if 
stockholders  can  interpose  their  individual  demands  as  set-offs  to  a 
demand  against  the  corporation,  it  follows  that  a  defendant  can  set  up 
demands  against  the  individual  stockholders  as  set-offs  to  demands  in 

O 

favor  of  the  corporation.  Illustrations  might  be  multiplied  indefinitely 
to  show  that  to  recognize  an}'  such  right  would  result  in  the  worst  sort 
of  complications,  and  that  the  only  safe  or  sound  rule  is  to  adhere 
strictly,  in  such  cases,  to  the  doctrine  of  a  corporate  entity  distinct 
from  the  individual  stockholders.  What  means,  if  an}',  the  interveners 
might  have  had,  or  may  hereafter  have,  of  protecting  themselves,  it  is 
not  now  our  business  to  inquire,  but  we  are  clear  that  their  claims 
against  plaintiffs  assignor  are  not  the  subjects  of  equitable  set-off  to  a 
claim  against  the  defendant  corporation.  Order  reversed. 


WARING   v.   CATAWBA   CO. 

1797.     2  Bay,  South  Carolina,  109.1 

ASSUMPSIT  for  goods  sold,  and  for  work  and  labour,  &c. 

Plea  in  abatement. 

This  case  came  before  the  court  upon  a  plea  in  abatement,  which 
pleaded  that  plaintiff  was  himself  a  member  of  the  company,  and 
therefore  could  not  maintain  any  action  against  it  in  his  individual 
capacity. 

Trezevant,  for  plaintiff. 

Attorney-  Gemral,  contra. 

THE  COURT,  after  hearing  the  arguments,  overruled  the  plea  in  abate- 
ment, as  containing  principles  subversive  of  justice  ;  but  they  observed, 
that  the  two  cases  of  Bourdeaux  and  Drayton  against  the  Santee  Canal 
Company,  had  settled  this  point,  as  they  had  both  been  allowed  by 
this  court  to  maintain  their  actions  for  their  salaries,  &c.,  against  the 
company,  as  well  as  the  cases  respecting  the  other  public  societies, 
mentioned  in  the  argument. 

The  plaintiff  was  then  allowed  to  go  on  and   prove  his  debt  to  a 

jury- 
Present,  BURKE,  GRIMKE,  and  BAY  ;  but  as  Judge  GRIMKE  was  a 
member  of  the  company,  he  declined  giving  an  opinion. 

1  Arguments  omitted.  —  E». 


40  FOSTEK   V.   COMMISSIONERS   OF   INLAND   REVENUE. 


JOHN  FOSTER  &  SON   LIMITED  v.  COMMISSIONERS   OF 
INLAND  REVENUE. 

1893.     L.  R.  (1894)  1  Q.  B.  516.1 

CASE  stated  by  Commissioners  of  Inland  Revenue. 

The  Stamp  Act  imposes  an  ad  valorem  duty  "  upon  conveyance  or 
transfer  on  sale  of  any  property."  The  consideration,  as  appears  from 
another  clause  of  the  Act,  need  not  always  be  money,  but  may  be  stock 
or  marketable  securities.  The  Act  provides  that  the  term  "conveyance 
on  sale"  includes  every  instrument  "  whereb}*  any  property  upon  the 
sale  thereof  is  legally  or  equitably  transferred  to  or  vested  in  the 
purchaser  or  any  other  person  on  his  behalf  or  by  his  direction." 

Eight  persons,  who  had  for  many  years  carried  on  business  in  part- 
nership as  John  Foster  &  Son,  being  desirous  that  the  firm  should  be 
reconstructed  as  a  Limited  Company  (registered  with  limited  liability 
under  the  Companies  Acts),  agreed  to  terminate  their  partnership,  and 
to  transfer  all  the  firm  property  to  a  Limited  Company,  styled  John 
Foster  &  Son  Limited,  to  be  formed  of  all  the  partners  exclusively 
for  the  purpose  of  taking  over  the  same  subject  to  all  the  liabilities ; 
the  whole  of  the  ordinary  shares,  preference  shares,  and  debenture  stock 
of  the  company  to  be  allotted  among  the  partners  in  proportion  to  their 
respective  shares  in  the  partnership  estate.  In  accordance  with  this 
agreement,  by  deed  of  indenture  between  the  eight  persons  who  corn- 
posed  the  partnership  and  the  Limited  Compam-,  registered  under  the 
Companies  Acts  under  the  name  of  John  Foster  &  Son  Limited,  all  the 
partnership  property  was  conveyed  to  the  Limited  Company. 

The  Commissioners  assessed  an  ad  valorem  duty  upon  the  deed,  as 
coming  under  the  head  of  a  "  conve.yance  or  transfer  on  sale." 

In  the  Queen's  Bench  Division,  CAVE,  J.  held  that  the  assessment 
was  erroneous,  and  WRIGHT,  J.  took  the  opposite  view.  WRIGHT,  J., 
withdrew  his  judgment,  and  the  appeal  from  the  Commissioners  was 
allowed. 

From  this  decision  of  the  Divisional  Court,  the  defendants  appealed 
to  the  Court  of  Appeal. 

Sir  Charles  Russell,  A.  G.,  and  DancJcwerts  (Sir  John  Rigby, 
S.  (1.,  with  them),  for  appellants. 

Flnlay,  Q.  C..  and  A.  R.  Kirby,  for  respondents.  [Argument  as 
condensed  in  69  L.  T.  N.  8.  p.  817.] 

In  order  to  constitute  a  sale  there  must  be  two  different  parties  capa- 
ble of  making  an  agreement,  and  there  must  be  two  different  things, 
the  property  sold  and  the  price  given  for  it.  In  the  present  case  there 
has  merely  been  a  re-arrangement  of  ownership.  The  parties  remained 
the  same,  and  nothing  was  parted  with,  and  nothing  was  given.  It 

1  Statement  abridged.  Opinions  in  Queen's  Bench  Division,  and  part  of  arguments, 
omitted.  —  ED. 


FOSTER   V.   COMMISSIONERS   OF   INLAND   REVENUE.  41 

was  like  a  conveyance  of  property  to  trustees  upon  trust  to  carry  on 
the  business,  and  divide  the  proceeds  arising  from  it  amongst  the 
conveying  persons. 

LINDLEY,  L.  J.     I  confess  that,  with  great  deference  to  CAVE,  J., 
I  cannot  see  the  difficulty  in  this  case. 

The  material  sections  of  the  Act  of  1870  must  first  be  considered. 
[The  Lord  Justice  then  read  ss.  70  and  71  of  the  Stamp  Act,  1870,  and 
continued  J  :  The  importance  of  s.  71,  to  my  mind,  is  this:  it  shews 
that  there  may  be  a  conveyance  on  sale,  although  the  consideration  for 
it  is  not  cash  or  money,  but  may  include  or  consist  of  stock  or  market-  i 
able  securities.  The  definition  of  "  stock  "  and  "  marketable  securities  " 
will  be  found  in  s.  2.  Then  s.  78  imposes  a  stamp  duty  on  conveyances 
not  otherwise  charged,  and  the  schedule  shews  what  the  stamps  are 
that  are  imposed  upon  conveyances  that  are  charged.  First  we  have 
""  conveyance  or  transfer  whether  on  sale  or  otherwise,"  of  certain 
stocks  and  dividends.  The  present  case  ffoes  not  come  within  that 
head.  Then  we  have  "  conveyance  or  transfer  on  sale,  of  any  prop- 
erty "  .  .  .  "  where  the  amount  or  value  of  the  consideration  for  the 
sale  does  not  exceed  £5."  That  fits  in  with  ss.  70  and  71.  Then  we 
come  to  "Conveyance  or  transfer  by  way  of  security  of  any  property 
or  of  any  security;"  and  then  we  have  "Conveyance  or  transfer  of 
any  kind  not  hereinbefore  described."  We  must  accordingly  consider 
under  which  of  these  heads  the  particular  deed  in  this  case  comes.  It 
certainly  does  not  come  under  the  first,  nor  under  "  conveyance  or 
transfer  by  way  of  security  of  an}'  property,"  and  the  alternative  is 
between  "  conveyance  or  transfer  on  sale  "  and  "  conveyance  or  transfer 
of  any  kind  not  hereinbefore  described." 

Now,  the  document  in  this  case  is  an  indenture  made  between  eight 
gentlemen  of  the  first  eight  parts,  and  "John  Foster  &  Sons  Limited 
(hereinafter  called  '  the  company '),  of  the  9th  part."  Pausing  there  for 
a  moment :  although  the  persons  of  the  first  eight  parts  may  be,  and 
were  members,  and  the  only  members,  of  John  Foster  &  Co.  Limited, 
John  Foster  &  Co.  Limited  is  not  those  eight  individuals  ;  John  Foster  \ 
&  Co.  Limited,  is  a  corporation.  We  have  accordingly  two  parties, 
one  part}*  consisting  of  several  individuals,  arid  the  other  party  consist-  / 
ing  of  a  corporation.  Whether  they  are  or  are  not  the  members,  or  the 
only  members  of  the  corporation,  is  wholly  immaterial.  The  corpora- 
tion is  a  totally  different  person  from  them  in  any  capacity  you  choose 
to  assign  to  them  except  a  corporate  one.  [The  Lord  Justice  then 
stated  the  recitals  in  and  the  operative  part  of  the  conveyances,  and 
continued]  :  — 

Then  the  parties  of  the  first  eight  parts  put  their  seals  to  the  instru- 
ment, and  the  company  puts  its  seal  to  it.    Now,  what  is  that  instrument? 
It  is  certainly  a  conveyance  of  property  ;  that  is  obvious.     In  order  to   •• 
amount  to  a  conveyance  of  property  there  must  be  a  person  conveying 
and  a  person  taking,  and  you  have  them  both  here.     The  persons  con- 
veying are  the  persons  named  in  the  first  eight  parts,  and  the  persons  / 
taking  are  the  corporation  named  in  the  ninth  part. 


42  FOSTER  V.   COMMISSIONERS   OF   INLAND   REVENUE. 

Now,  what  is  the  consideration  ?  The  consideration  for  the  transfer 
of  this  property  is,  I  agree,  not  money,  but  it  is_stocks_and  securities, 
which  for  this  purpose  are  to  be  regarded  as  equivalent  to  money  by 
reason  of  s.  71  of  the  Act  to  which  I  have  already  alluded.  Then  what 
have  we  got?  To  sum  it  up  shortly,  it  is  a  conveyance  of  property 
from  one  person  to  another,  for  money,  or  what  is,  according  to  the 
provisions  of  the  statute,  equivalent  to  money.  What  is  that  except  a 
conveyance  on  sale?  What  else  can  you  call  it?  It  is  certainly  not  a 
gift ;  it  is  not  an  exchange;  it  is  not  a  partition  ;  it  is  not  a  mortgage. 
I  do  not  know  what  it  is  unless  it  is  a  conveyance  on  sale.  I  do  not 
know  what  is  necessary  to  constitute  a  sale,  except  a  transfer  of  prop- 
erty from  one  person  to  another  for  money,  or  for  the  purposes  of  the 
Stamp  Act,  foi  stock  or  marketable  securities. 

But  then  it  is  argued  that  it  is  only  a  redistribution  of  property.  I 
do  not  consider  it  a  redistribution  at  all.  It  is  an  entire  transfer  of 
property  from  one  set  oP>people  to  another  person  altogether,  and 
whether  there  are,  as  there  may  well  be  hereafter,  additional  persons 
taking  shares  in  this  company,  is  perfectly  immaterial. 

Again  it  is  argued  on  behalf  of  the  appellants  that  this  instrument  is 
in  substance  nothing  more  than  a  conveyance  to  a  trustee  to  carr}'  on 
the  business  in  trust  for  the  grantor.  Just  try  that.  Supposing  there  is 
a  conveyance  by  half-a-dozen  people,  transferring  their  property  to  a 
trustee  on  trust  to  carry  on  the  business  for  them,  can  you  in  an}-  sense 
of  the  word,  legal  or  busiuess-like,  or  otherwise,  call  that  trustee  a 
buyer?  There  is  no  biding,  there  is  no  sale  to  him  at  all,  nor  is  there 
any  money,  or  stock,  or  securities,  or  an}'thing  else  parted  with  by  him. 
Then  it  was  urged  that  these  shares  can  derive  no  value  unless  the 
company  gets  this  propert}'  transferred  to  them.  That  is  possible 
enough.  That  is  to  say,  in  other  words,  that  the  shares  in  the  com- 
pany would  be  valueless  unless  the  company  had  assets.  Of  course 
they  would  be,  but  that  does  not  affect  the  question  whether  there  is  a 
sale  or  a  conveyance  or  not.  I  think  myself  that  CAVE,  J.,  has  attached 
too  little  importance  to  the  fact  that  you  have  here  a  distinct  seller, 
and  a  distinct  buyer,  and  that  in  point  of  law  it  is  immaterial  that  in 
the  present  case  the  buyer  is  a  corporation  which  consists  of  the  eight 
persons  who  formed,  and  who  are,  the  partners.  The  appeal  must  be 
allowed. 

KAT,  L.  J.  I  am  of  the  same  opinion.  With  deference  to  CAVE,  J., 
it  seems  to  me  impossible  to  hold  that  this  transaction  was  a^'thing 
else  than  a  conveyance  on  sale.  As  pointed  out  on  the  face  of  the 
statute,  the  consideration  ma}'  be  money  or  money's  worth.  Money's 
worth  certainly  is  sufficiently  expressed  by  a  number  of  shares  and 
debentures  of  an  existing  corporation,  which,  in  effect,  constituted  the 
consideration  for  the  particular  transfer  in  this  case.  Now,  that  there 
was  a  conveyance  is  be%yond  all  question.  The  persons  who  are  named 
as  vendors  in  the  deed  have  divested  themselves  of  their  property  in  the 
subject  of  that  conveyance,  and  all  that  propert}'  is  vested  in  an  entirely 


FOSTER   V.   COMMISSIONERS   OF   INLAND   REVENUE.  43 

independent  and  separate  bod}-,  —  namely,  a  corporation.  Suppose  that  i 
corporation  had  consisted  of  altogether  different  persons,  no  one  for  a 
moment  would  doubt  that  this  was  a  conveyance  on  sale.  Suppose 
there  had  been  one  person  in  it  different,  there  is  nothing  that  I  have 
heard  in  the  argument  which  induces  me  to  suppose  that  even  in  that 
case  it  could  have  been  doubted  that  this  was  a  conveyance  on  sale. 
But  the  argument,  as  I  understand  it,  is  this,  —  that  the  individual  cor- 
porators who  composed  that  corporation  were,  in  fact,  the  very  identical 
persons  who  were  conveying  this  property  to  the  corporation,  and  the 
corporation  had  no  other  property  except  this  which  it  took  under  its 
conveyance  ;  and  that,  as  the  only  value  of  the  shares  and  debentures 
was  derived  from  this  very  property  which  the  individual  corporators 
were  conveying  to  the  corporation,  the  conveying  partners  either  got 
no  consideration  for  that  which  they  conveyed  other  than  part  of  the 
property  actually  conveyed,  or  they  got  no  consideration  at  all.  Now, 
I  do  not  follow  that  argument  in  the  least.  I  think  it  is  a  fallacy  from 
beginning  to  end.  In  the  first  placet  a  corporation  is  a  different  thing 
from  the  individuals-  who  compose  it ;  and,  secondly,  the  shares  and_ 
flghpntnrps  of  a  corporation  are  not  the  same  thing  as  the  property _ 
which  that  corporation  owns.  You  may  say,  in  one  sense,  that  the 
property  is  a  security  for  the  value  of  those  shares.  The  value  of  those 
shares  in  the  market,  which  observe  are  immediately  transferable,  may 
depend  upon  the  solvency  of  the  compan}-,  the  amount  of  property  it 
possesses,  and  its  chance  of  carrying  on  a  profitable  business.  To  say 
that  the  shares  and  debentures  are  part  of  that  propert}*  seems  to  me 
to  be  a  complete  confusion  of  terms.  Suppose  the  case,  which  I  put 
during  the  argument,  of  a  sale  of  real  estate,  and  the  whole  of  the 
porchase-monej  not  to  be  paid  at  once  in  cash,  but  to  be  secured  on 
mortgage  on  that  real  estate  ;  and,  if  you  like,  in  order  to  make  the 
analogy  perfect,  suppose  the  purchaser  had  no  other  property  than  that 
property,  would  the  transaction  be  the  less  a  sale  for  that  reason? 
Still  the  consideration  given  would  be  a  certain  amount  of  cash  which 
would  be  left  on  the  security  of  the  estate  ;  but  I  have  never  yet  heard 
that  because  the  whole  of  the  purchase-money  upon  a  sale  of  real  estate 
was  left  on  mortgage  of  the  real  estate,  that  for  that  reason  the  trans- 
action ceased  to  be,  or  was  prevented  from  being,  a  sale.  Yet,  really, 
that  is  what  the  argument  in  this  case  comes  to.  I  confess  I  am  not 
able  to  agree  with  it.  Nothing  else  was  suggested  which  should  pre- 
vent this  transaction  from  being  a  sale,  and  it  seems  to  me  clearly  to 
be,  under  the  words  of  this  statute,  "  a  conveyance  on  sale"  for  a  con- 
sideration, which,  if  not  money,  at  least  is  money's  worth.  I,  therefore, 
with  all  deference  to  CAVE,  J.,  think  that  his  decision  must  be  reversed, 
and  the  appeal  allowed. 

A.  L.  SMITH,  L.  J.  The  question  in  this  case  is  whether  the  instru- 
ment of  November  27,  1891,  is  a  conveyance  or  transfer  on  sale  of  any 
of  the  property  mentioned  under  the  second  head — "  conveyance  or 
transfer"  —  in  the  schedule  to  the  Stamp  Act  of  1870. 


44  FOSTER  t\   COMMISSIONERS   OF   INLAND   REVENUE. 

Now,  in  order  to  find  out  what  is,  or  is  not,  a  conveyance  or  transfer 
on  sale  of  an}-  property  in  that  second  head  of  the  schedule,  1  must 
refer  to  ss.  70  and  71  of  the  Act.  And,  reading  both  these  sections 
together,  it  seems  to  me  that  the  term  "conveyance  on  sale"  includes 
every  instrument  whereby  any  property,  upon  the  sale  thereof,  is  trans- 

[  ferred  to  or  vested  in  the  purchaser  in  consideration  of  an}'  stock  or 

I  marketable  security.     That  is  the  definition. 

First  of  all,  then,  is  this  an  instrument  whereby  am'  property  is 
transferred  to  or  vested  in  the  purchaser?  I  beg  to  say,  Yes.  It  is  an 
instrument  upon  the  face  of  which  the  actual  land  of  the  vendors,  and 
the  trade-marks  which  are  their  property,  are  transferred  to  a  limited 
company.  I  do  not  think  that  this  is  disputed,  and  it  does  not  appear 
to  me  to  be  disputed  so  far,  in  the  judgment  of  my  brother  CAVE  ;  but 
what  he  says  is  that  this  is  not  an  instrument  whereby  any  property, 
upon  the  sale  thereof,  is  transferred.  The  real  pith  of  his  judgment 
is  that  the  vendors  and  vendees  are  the  same  persons  —  that  the  agree- 
ment as  regards  the  sale  was  carried  out  by  the  members  of  the  old 
firm  before  any  company  limited  came  into  existence,  and  that  inas- 
much as  they  are  the  same  persons  now  as  then,  there  is  no  sale  at 
all ;  and,  therefore,  there  is  no  instrument  whereby  any  property  upon 
the  sale  thereof  is  transferred.  I  must  here  respectfully  differ  with  my 
brother  CAVE.  It  seems  to  me  that  the  company  limited  are  not  the 
same  persons  as  the  eight  members  of  the  old  firm —  the}*  are  different 
altogether.  It  was  admitted  by  Mr.  Finlay  in  argument,  though  he 

1  entirely  took  away  the  ground  from  under  my  brother  CAVK'S  feet  when 

I  he  said  so,  that  the  company  limited  could  maintain  a  suit  for  specific 
performance  against  the  old  partners.  If  that  is  so,  how  can  they  be 
the  same  persons?  Tins  really  shews  that  they  are  not  the  same 
persons.  It  is  here  that  I  disagree  with  my  brother  CAVE. 

The  respondents  also  contend  that  there  was  no  consideration.  We 
must  read  the  two  sections  together.  Sect.  70  enacts  that :  "  The  term 
4  conveyance  on  sale '  includes  every  instrument  whereby  any  property, 
upon  the  sale  thereof,  is  transferred  to  or  vested  in  the  purchaser." 
Then  s.  71  implies  that  it  may  be  in  consideration  of  any  stock  or 
marketable  security.  The  land  and  the  trade-marks  are  transferred 
by  this  instrument  from  the  eight  partners  who  were  the  old  firm  to  the 
new  company  limited.  The  land  and  trade-marks  are  transferred  by 
this  instrument  in  consideration  of  what?  In  consideration  of  stock 
or  marketable  securities,  which,  undoubtedly,  are  not  the  same  things 
as  the  land  and  trade-marks  themselves,  though  they  may  be  charges 
upon  the  land  and  trade-marks  which  are  conveyed.  It  seems  to  me 
that  it  is  untrue  to  say  that  in  this  transaction  there  has  been  no  con- 
sideration passing  from  the  vendee  to  the  vendor.  Although  charges 
upon  the  land  and  the  trade-marks,  the  consideration  comes  within  the 
very  terms  of  s.  71  itself,  —  "  any  stock  or  marketable  security." 

For  these  reasons,  I  prefer  the  judgment  of  my  brother  WRIGHT  to 
that  of  my  brother  CAVE.  Appeal  allowed. 


MOORE  AND  HANDLEY  HARDWARE  CO.  V.  TOWERS  HARDWARE  CO.   45 


MOORE   &  HANDLEY  HARDWARE  CO.   y.  TOWERS 
HARDWARE   CO. 

1888.     87  Alabama,  206.1 

APPEAL  from  the  Chancery  Court  of  Jefferson. 

Bill  filed  Dec.  3,  1888,  by  Towers  Hardware  Co.,  a  private  corpora- 
tion, against  Moore  &  Handley  Hardware  Co.,  another  private  corpo- 
ration, seeking  to  enjoin  defendant  company  from  selling  "  plow-stocks 
and  plow-blades"  in  violation  of  a  contract  made  between  plaintiff 
company  and  a  partnership  doing  business  under  the  name  of  Moore, 
Moore  &  Handley,  which  was  composed  of  James  D.  Moore,  Benj.  F. 
Moore,  and  William  A.  Handley,  who,  as  the  bill  alleged,  afterwards 
formed  the  defendant  corporation.  The  allegations  of  the  bill  were,  in 
substance,  as  follows  :  Said  partnership,  May  27,  1887,  sold  out  to  plain- 
tiff their  entire  stock  of  plow-stocks  and  plow-blades  ;  signing  an  agree- 
ment—  k'  we  agree  not  to  handle  any  more  plow-stocks  or  plow-blades, 
except  railroad  plows."  On  March  12,  1888,  the  defendant  company 
was  incorporated  under  the  general  statutes.  The  said  partners  each 
subscribed  one-fourth  of  the  capital  stock,  and  one  Wimberly  one- 
fourth.  If  Wimberly  ever  had  any  interest  in  the  corporation,  he 
had  not  had  it  since  Aug.  8,  1888.  Said  Moores  and  Handley  are 
now  the  sole  owners.  The  defendant  corporation  was  organized  for  the 
purpose  of  carrying  on  the  same  business  which  the  partnership  had 
carried  on.  Its  capital  stock  was  paid  for  wholly  in  the  assets  of  said 
partnership.  It  succeeded  to  all  the  property  rights  and  assets  of  said 
partnership,  as  well  as  all  the  liabilities  thereof.  Said  defendant  cor- 
poration is  none  other  than  said  J.  D.  Moore,  B.  F.  Moore,  and  Wm. 
A.  Handley,  who  constituted  said  partnership,  and  now  constitute  said 
corporation.  "Your  orator  cannot  say  whether  or  not  said  Moores 
and  Handley  organized  said  corporation  for  the  purpose  of  evading  the 
force  and  effect  of  their  said  agreement  with  your  orator,  but  does  say 
and  charge  that  the  effect  of  their  doing  so  would  be  to  perpetrate  a 
fraud  on  your  orator,  if  they  should  be  allowed  to  handle  plow-blades  and 
plow-stocks  ;  that  the  defendant's  business,  as  now  conducted,  is  iden- 
tically the  same  as  that  conducted  by  said  Moores  and  Handley,  is  con- 
ducted by  the  same  persons,  and  in  substantially  the  same  manner  as 
before,  and  that  the  only  change  in  fact  has  been  in  the  name  of  the 
concern. 

The  defendant  corporation  answered  the  bill ;  denying  that  it  as- 
sumed, or  became  liable  for,  the  obligations  of  said  partnership,  or  of 
its  individual  partners,  or  that  it  acquired  any  interest  in  the  outstand- 
ing notes  and  accounts  due  to  said  partnership,  or  the  real  estate  owned 
by  the  partners,  which  was  more  than  sufficient  to  pay  all  their  out? 

1  Statement  abridged.     Arguments,  and  part  of  opinion,  omitted.  —  ED. 


46      MOORE  AND  HAXDLEY  HARDWARE  CO.  V.  TOWERS  HARDWARE  CO. 

standing  debts  and  liabilities ;  alleging  that  Wimberly  owned  a  one- 
fourth  interest  in  the  corporation  at  its  organization,  and  for  some 
time  acted  as  its  treasurer,  but  admitting  that  the  M cores  and  Handley 
had  since  bought  out  his  interest ;  and  demurring  to  the  bill  for  want 
of  equity. 

Afte/answer  filed,  defendant  moved  to  dissolve  the  temporary  in- 
junction and  to  dismiss  the  bill ;  and  this  appeal  is  taken  from  the 
decree  of  the  Chancellor  refusing  these  motions. 

Smith  &  Lowe,  for  appellant. 

Cabaniss  &  Weakley,  contra. 

McCLELLAN,  J.  The  equity  of  the  bill,  so  far  as  the  injunction  is 
concerned,  and  the  sufficiency  of  those  of  its  allegations  which  are  not 
denied  by  the  answer  to  sustain  the  injunction  depend,  primarily,  on 
two  questions.  First,  whether  the  contract  relied  on  is  void,  as  being 
in  unreasonable  restraint  of  trade  ;  and,  second,  whether  a  negative  un- 
dertaking entered  into  by  persons  who  subsequently  organize,  and  for 
the  time  constitute  a  corporation  for  the  prosecution  of  the  business 
with  respect  to  which  the  contract  was  made,  can  be  enforced  by  injunc- 
tion against  the  corporation. 

1.  [The  learned  Judge  held  that  the  contract  was  not  void,  as  being 
in  unreasonable  restraint  of  trade.] 

2.  The  general  doctrine  is  well  established,  and  obtains  both  at  law 
and  in  equity,  that  a  corporation  is  a  distinct  entity,  to  be  considered 
separate  and  apart  from  the  individuals  who  compose  it,  and  is  not  to 
be  affected  b}'  the  personal  rights  and  obligations  and  transactions  of  its 
stockholders,  and  this  whether  said  rights  accrued  or  obligations  were 
incurred  before  or  subsequent  to  incorporation.      1  Mor.  Priv.  Corp. 
§§  227-234,  547-549  ;  Morrison  v.  Mining  Co.,  52  Cal.  309  ;  Hawkins 
v.  Mining  Co.,  Id.  515  ;  Gent  v.  Insurance  Co.,  107  111.  658  ;  Railroad 
Co.  v.  Helensburgh,  2  Macq.  391  ;  Match  Co.  v.  Hapgood,  141  Mass. 
145,  7  N.  E.  Rep.  22.    There  is  a  class  of  contracts,  however,  which  are 
entered  into  between  the  promoters  or  projectors  of  a  contemplated  cor- 
poration and  third  persons  on  the  faith  of  the  corporation,  intended  to 
inure  to  its  benefit,  and  which  in  point  of  fact  do  inure  to  its  benefit, 
on  which  the  corporation  will  be  charged,  even  in  the  absence  of  an 
express  promise  to  perform,  or  ratification  on  the  part  of  the  company 
after  it  is  in  ease,  on  "  the  familiar  principle  that  one  who  adopts  the 
benefit  of  a  contract  which  another  volunteers  to  perform  in  his  name 
and   on  his  behalf  is  bound  to  take  the   burden   with  the    benefit." 
1  Redf.  R.  R.  (5th  ed.)  18  ;  Edwards  v.  Railroad  Co.,  1  Mylne  &  C.  650  ; 
Stanley  v.  Railway  Co.,  9  Sim.  264;  Little  Rock  &  F.  S.  R.  Co.  v. 
Perry,  37  Ark.  164  :  Perry  v.  Little  Rock  &  F.  S.  R.  Co.,  44  Ark. 
383  ;  JSommer  v.  Manufacturing  Co.,  81  N.  Y.  468.     And  in  those 
cases  where  associates  combine  together  to  create  a  paper  corporation 
to  cover  a  partnership  or  joint  venture,  and  where  the  stockholders  are 
partners  in  intention,  and  have  resorted  to  the  fiction  of  separate  cor- 
porate entity  to  free  themselves  from  individual  obligations  which  had 


MOOEE  AND  HANDLEY  HARDWARE  CO.  V.  TOWERS  HARDWARE  CO.   47 

attached  to  them,  with  respect  to  the  business  they  propose  to  carry  on, 
prior  to  the  organization  of  the  company,  courts  of  equity,  when  the 
ends  of  justice  require  it,  will  disregard  and  look  beyond  the  fiction  of 
corporate  entity,  and  hold  the  corporation  to  a  discharge  of  the  liabili- 
ties resting  on  its  members  ;  and  this  may  be  done  although  some  of  the 
shareholders  had  not  originally  incurred  the  obligation  sought  to  be 
enforced,  provided  they  had  notice  of  it  before  entering  the  corpora- 
tion and  participated  in  the  effort  to  avoid  it.  Wheel  Co.  v.  Wagon 
Co.,  20  Fed.  Rep.  700;  jBealv.  Chase,  31  Mich.  490,  495,  532. 

The  contract  of  Moore,  Moore  &  Handler,  sought  to  be  enforced 
against  the  Moore  &  Handle}-  Hardware  Compan}-,  was  not  an  under- 
taking between  promoters  of  the  company  and  third  parties,  nor  made 
on  the  faith  of  the  corporation,  nor  intended  to  inure  to  its  benefit,  nor 
did  it  inure,  in  point  of  fact,  to  the  benefit  of  the  corporation.  It  is 
not  of  that  class  of  contracts  which  courts  enforce  against  corporations 
on  the  grounds  that  they  were  made  in  the  corporate  name  by  antici- 
pation, and  that  the  corporation  received  and  accepted  the  benefits  result- 
ing from  them.  There  is  no  allegation  of  fraud  made  against  the  cor- 
poration or  its  shareholders,  and  the  implication  of  the  fraudulent  effect 
of  the  corporate  action  complained  of  is  denied.  Jt  is  not  shown  that 
this  is  a  mere  "  paperjjprporation  "  to  cover  a  joint  venture  in  which 
the  corporators  are  partners  in  intention,  and  have  resorted  to  this  form 
for  the  purpose  of  evading  and  avoiding  obligations  which  the3r  had_ 
taken^npon  themselves  as  individuals,  or  for  the  purpose  of  evading  the 
promise  relied  on  here.  K  these  things  had  appeared  in  the  case  we 
'slfou'IcTnot  hesitate  to  hold  the  corporation  answerable  for  the  individual 
Obligation.  But  in  the  absence  of  fraud  "  no  authorities  have  gone  the 
lengflfof  holding  that  any  contract  made  with  individuals  exclusively 
upon  individual  credit  will  become  the  contract  of  any  future  corpora- 
tion that  may  form  for  the  more  convenient  management  and  use  of  the 
benefits  of  it."  Little  Rock  &  F.  S.  Jt.  Co.  Cases,  supra.  If  the 
case  of  Seal  v.  Chase,  supra,  goes  beyond  this  doctrine,  we  cannot 
indorse  it.  We  do  not  think  it  does.  In  that  case  the  corporation  had 
been  formed  for  the  purpose  of  violating  a  contract  not  to  engage  in  a 
certain  business.  All  the  corporators  were  held  to  have  participated  in 
this  purpose.  The  business  was  to  be  conducted  by  the  corporation  in 
connection  with  the  promisor  in  his  individual  capacity.  He  had  an 
interest  in  it,  both  individually  and  as  the  principal  shareholder  of  the 
company  ;  and  the  court  enjoined  the  corporation,  not  generally,  but 
from  carrying  on  the  business  with  or  for  the  individual  contracting 
party.  To  put  the  case  at  bar  in  line  with  that  case  it  would  have  to 
appcaiynotonly  that  the  corporation  organized  for  the  purpose  and 
with  the  Intention  of  evading  their  contract  through  the  separate  entity 
of  corporate^ixistence,  but  also  that  they  reserved  an  interest  in  the 
business  distinct  from  their  interests  as  stockholders^  None  of  these 
facts  are  shown.  The  effect  of  allowing  the  injunction  in  this  case  to 
continue  would  necessarily  be  to  hold  all  future  shareholders  in  the  cor- 


43  WARREN   V.   DAVENPORT  FIRE   INSURANCE   CO. 

poration  to  the  performance  of  a  contract  which  neither  they  nor  the 
corporation  had  ever  entered  into,  and  of  which  they  may  not  even 
have  had  notice.  Such  a  result  could  only  be  justified  on  the  ground  i 
of  bad  faith  in  the  creation  of  the  company.  To  thus  hamper  a  bona 
fide  corporation  would  be  inequitable,  and  have  the  effect  of  establish- 
ing a  doctrine  fraught  with  much  danger  to  corporate  rights,  powers, 
and  property. 

The  allegations  going  to  show  a  ratification  by  the  corporation  of 
this  contract  of  Moore,  Moore  &  Handley  are  denied  by  the  answer, 
and  hence  cannot  be  considered  in  passing  on  the  decree  overruling 
the  motion  to  dissolve  the  injunction.  Those  allegations  of  the  bill 
which  are  not  denied  were  not  sufficient  to  authorize  a  continuance  of  the 
injunction,  and  the  decree  on  that  point  was  erroneous,  and  is  reversed. 
The  contract  relied  on  here  is  such  a  one  as  the  respondent  corpora- 
tion could  have  made  under  its  charter.  It  is  therefore  one  which,  being 
alread}'  in  existence  between  complainant  and  the  individuals  compos- 
ing the  defendant  company,  the  corporation  had  the  power  to  ratify 
and  adopt.  The  bill,  in  our  judgment,  sufficiently  avers  such  ratifica- 
tion or  adoption.  These  allegations  give  equity  to  the  bill,  and  the 
decree  overruling  the  demurrer  is  affirmed.  The  cause  will  be  re- 
manded, with  instructions  to  the  chancellor  to  dissolve  the  injunction, 
unless  the  complainant  amends  its  bill  so  as  to  entitle  it  to  a  continu- 
ance of  the  writ,  under  the  principles  we  have  announced. 

Reversed  and  remanded. 


WARREN  v.  DAVENPORT  FIRE  INSURANCE  CO. 

1871.     31  Iowa,  464.1 

ACTION  on  a  policy  of  insurance,  issued  by  defendant  on  alleged 
property  of  Goodale  &  Hosford,  payable,  in  case  of  loss,  to  plain- 
tiffs, who  are  creditors  of  G.  &  H. 

Petition  averred  that  defendant  insured  Goodale  &  Hosford  against 
loss  by  fire,  to  the  amount  of  $2,500,  "  on  their  private  stock  contained 
in  a  one  story  frame  saw-mill,  machinery,  fixed  and  movable,  engine 
and  boilers  therein,  and  known  as  that  of  the  Dubuque  Lumber  Com- 
pany "  —  loss,  if  any,  payable  to  the  plaintiffs.  Petition  also  averred 
that  Dubuque  Lumber  Co.  was  and  still  is  a  corporation ;  that  by 
the  "private  stock  "before  mentioned  was  meant  the  capital  stock 
which  G.  &  II.  then  had  and  still  have  in  the  corporation,  all  of  which 
was  known  to  defendant's  agent  at  time  of  insurance ;  that  by  means 
of  such  stock  said  G.  &  H.  had,  and  continued  to  have,  an  interest  in 

1  Statement  abridged.  —  ED. 


WARREN   V.   DAVENPORT   FIRE   INSURANCE   CO.  49 

the  insured  propert}*,  viz.  in  said  saw-mill,  machinery,  &c.,  to  an 
amount  exceeding  $2,500  over  and  above  so  much  of  their  interest 
therein  as  was  covered  by  an  insurance  of  $15,000,  effected  by  the 
corporation  in  its  corporate  name ;  that  plaintiffs  are  creditors  of  G.  & 
H.  to  a  large  amount,  and  hold  the  certificates  for  a  considerable 
amount  of  the  stock  of  said  corporation  as  security  ;  and  that  the  in- 
surance was  effected  with  the  full  knowledge  and  consent  of  the  lumber 
compan}-. 

Attached  to  the  petition  was  a  copy  of  the  polic\',  stipulating  that 
"the  loss  or  damage  is  to  be  estimated  according  to  the  true  and 
actual  cash  value  of  the  property  at  the  time  the  same  shall  happen 
and  be  paid." 

To  this  petition  defendant  demurred  :  first,  because  it  does  not  show 
that  plaintiffs  have  any  interest  in  the  property  destroyed  or  in  the 
polic}* ;  second,  because  it  does  not  show  that  Goodale  &  Hosford  had 
any  instirable  interest  in  the  property  insured  at  the  time  the  insurance 
was  effected  by  them. 

The  demurrer  was  sustained  in  the  District  Court.  Plaintiffs 
appealed. 

Cotton  &  Cross,  for  appellants. 

W.  E.  Leffingwett,  for  appellee. 

MILLER,  J.  The  question  raised  by  the  demurrer  is,  whether  the 
parties  effecting  the  insurance  in  this  case  had  an  insurable  interest 
in  the  property  insured  at  the  time  the  risk  was  taken  and  at  the  time 
of  loss  by  fire. 

Policies  of  insurance  founded  upon  mere  hope  and  expectation,  and 
without  some  interest,  are  said  to  be  objectionable  as  a  species  of 
gaming,  and  so  have  been  called  wager  policies.  These  policies  were 
expressly  prohibited  in  England  by  statute  of  George  II.,  ch.  37,  and 
they  have  been  adjudged  illegal  and  void  in  this  countiy  upon  the 
principles  of  that  statute.  Angell  on  Fire  &  Life  Ins.,  §§  18,  55. 
It  is  not  that  wager  policies  are  without  consideration  or  unequal  be- 
tween the  parties  that  they  are  held  void,  but  because  they  are  con- 
traiy  to  public  policy.  Policies  of  fire  insurance,  without  interest,  are 
peculiarly  and  extreme!}-  hazardous  by  reason  of  the  temptation  the}* 
hold  out  to  the  commission  of  arson  by  the  party  assured,  which  is 
necessarily  attended  with  peril  of  the  most  deplorable  kind  to  a  whole 
neighborhood.  In  King  v.  State  Mutual  Fire  Ins.  Co.,  7  Gush.  (Mass.) 
10,  Mr.  Chief  Justice  Shaw  says:  "If  an  insurance  were  made  on  a 
subject  in  which  the  assured  has  no  pecuniary  interest  —  although  in 
other  respects  he  ma}-  be  deeply  concerned  in  it  and  on  that  ground  be 
willing  to  pay  a  fair  premium  —  made  with  full  knowledge  of  all  the 
circumstances,  by  both  parties,  without  coercion  or  fraud,  we  cannot 
perceive  why  it  would  not  be  valid  as  between  the  parties.  But  upon 
the  strong  objections,  on  grounds  of  public  policy,  to  all  gaming  con- 
tracts, and  especially  to  contracts  which  would  create  a  temptation  to 
destroy  life  or  property,  such  policies  without  interest  are  justly  held 

4 


50  WARREN   V.   DAVENPORT   FIRE    INSURANCE   CO. 

void."  Upon  the  ground  of  public  policy,  therefore,  if  the  assured 
have  no  interest  in  the  thing  insured,  the  policy  must  be  held  void. 
This  is  well  settled.  On  the  other  hand  it  is  equally  well  settled  that 
not  onlv  the  absolute  owner,  but  any  one  having  a  qualified  interest  in 
the  property  insured,  or  even  any  reasonable  expectation  of  profit  or 
advantage  to  be  derived  from  it,  may  be  the  subject  of  insurance  and 
especially  if  it  be  founded  in  some  legal  or  equitable  title.  Id.  §  56. 
And  the  general  doctrine  that  any  interest  in  the  subject-matter  in- 
sured is  sufficient  to  sustain  an  insurance  upon  real  propertj*  is  one 
which  has  been  fully  sustained.  Id.  §  57,  and  notes.  Several  persons 
owning  different  interests  in  the  same  property  ma}-  insure  their  several 
interests.  And  it  is  not  material  whether  the  interest  assured  be  legal 
or  equitable.  Any  interest  which  would  be  recognized  by  a  court  of_ 
law  or  equity  is  an  insurable  interest. 

The  interest  of  a  cestui  que  trust,  mortgagor,  mortgagee,  of  a  lender 
or  borrower  on  bottomry,  so  far  as  regards  the  surplus  value,  or  of  a 
captor,  or  of  one  entitled  to  freight  or  commission,  is  insurable.  So 
where  a  lessor  on  ground  rent  has  entered  for  the  arrears,  under  a  cov- 
enant that  he  maj*  hold  until  the  arrears  are  paid,  &c.,  has  an  insurable 
interest.  So  also  in  case  of  one  in  possession  of  land  by  disseisin. 
Angell  on  Fire  and  Life  Ins.,  §§  57,  58,  59  ;  2  Parsons  on  Cont,  §  2 
of  eh.  14,  commencing  on  p.  438,  and  cases  cited ;  2  Greenlf.  on 
Ev.,  §  379. 

The  term  interest,  as  used  in  application  to  the  right  to  insure,  does 
not  necessarily  imply  property  (Hancock  v.  Fishing  Insurance  Co., 
3  Sumner's  C.  C.  132 ;  Angell  on  Life  and  Fire  Ins.,  §  56),  and  as  the 
contract  of  insurance  is  one  of  indemnity,  against  losses  and  disad- 
vantages, an  insurable  interest  may  be  proved  in  the  assured,  without 
the  evidence  of  any  legal  or  equitable  title  in  the  property.  Putnam 
v.  Mercantile  Insurance  Co.,  5  Mete  386 ;  Lazarus  v.  The  Common- 
wealth Insurance  Co.,  19  Pick.  81,  98.  An  "insurable  interest"  is 
sui  generis,  and  peculiar  in  its  texture  and  operation.  It  sometimes 
exists  where  there  is  not  any  present  property,  or  jus  in  re,  or  jus  ad 
rem.  Yet  such  a  connection  must  be  established  between  the  subject- 
matter  insured,  and  the  party  in  whose  behalf  the  insurance  has_beejL 
effected,  as  ma}r  be  sufficient  for  the  purpose  of  deducing  t.hi>  PviatpnfA 
Of  a  loss  to  him  from  t.ho  rw>nrrftnf»p  of  the  injury  to  it.  Huck  v. 
Chesapeake  Insurance  Co.,  1  Pet.  163. 

In  the  case  under  consideration  the  assured  were  stockholders  in  the 
Dubuque  Lumber  Co.,  a  corporation  for  pecuniaiy  profit.  The  prop- 
erty destroyed  belonged  to  the  corporation.  The  insurance  was  upon 
the  interest  which  the  assured  had  in  that  property  by  virtue  of  the 
capital  stock  therein  owned  by  them. 

The  object  of  the  insurance  was  to  indemnify  the  assured  against 
loss  to  them  in  the  event  of  a  destruction  of  the  property  by  fire. 
Could  or  would  they  sustain  loss  in  such  event?  How  would  their  in- 
terest be  affected?  It  seems  to  us  to  be  beyond  controvers}', 


WARREN   V.   DAVENPORT   FIRE    INSURANCE   CO.  51 

case  of  the  destruction  of  the  corporate  property  by  fire,  the  stock- 
holders  sustain  loss  to  a  greater  or  less  _^touta_dependent_onL._tlie  jxir- 
ticular  circumstances.  Suppose  the  case  of  a  grain  elevator  upon 
some  of  our  numerous  railroad  lines,  built,  owned  and  managed  by  a 
joint-stock  corporation  ;  that  this  is  the  only  property  of  the  corpora- 
tion ;  that  the  entire  capital  stock  is  represented  in  and  by  this  prop- 
ert}' ;  that,  in  consequence  of  the  profitable  nature  of  the  business, 
large  dividends  are  realized  by  the  stockholders,  and  the  stock  is  above 
pur  in  the  market.  The  destruction  of  this  property  b}'  fire  would  at 
once  result  in  the  loss  of  dividends  to  the  stockholders  and  a  destruc- 
tion of  the  value  of  the  stock,  or  at  least  to  its  reduction  to  a  nominal 
value.  The  entire  property,  representing  the  whole  capital  of  the  cor- 
poration, being  destroyed,  it  is  difficult  to  perceive  what  would  give 
any  value  to  the  stock.  It  is  true  that,  primarily,  the  loss  is 
that  of  the  corporation,  and  hence  it  may  insure,  but  the  corpora- 
tion may  refuse  to  insure,  and  then  the  real  and  actual  loss  falls  on 
the  stockholders. 

The  appellee  argues  that  shares  of  stock  in  a  corporation  are  choses 
in  action,  and  are  not  considered  to  be  an  interest  in  the  real  property 
of  the  company,  and  cites  numerous  authorities  to  sustain  this  posi- 
tion. This  maybe  admitted  without  denying  the  shareholders'  "in- 
surable  interest"  in  the  property  of  the  corporation.  A  mortgage, 
also,  is  but  a  chose  in  action.  The  mortgagee  acquires  no  right  to  the 
mortgaged  property  which  can  be  attached,  levied  on  under  a  general 
execution,  or  that  can  be  inherited.  It  is  a  mere  security  for  a  debt. 
Eaton  \.  Whiting,  %  Pick.  484  ;  Smith  \.  People's  Bank.  11  Shep. 
(Me.)  185;  Abbott  v.  Mutual  Fire  Ins.  Co.,  17  id.  414;  Middleton 
Savings  Bank  v.  Dubuque,  15  Iowa,  394  ;  Newman  v.  De  Larimer, 
19  id.  244  ;  Baldwin  v.  Thompson,  15  id.  504  ;  Burton  v.  Hintrager, 
18  id.  348  ;  Hilliard  on  Mort.  215. 

And  yet  the  cases  are  uniform  to  the  effect  that  a  mortgagee  of  real 
property  has  an  insurable  interest  therein  which  he  may  insure  on  his 
own  account,  but  that  when  he  does  so  it  is  but  an  insurance  of  his 
debt.  Eaton  v.  Whiting,  supra.  And  in  case  of  damage  by  fire  to 
the  premises  before  payment  of  the  mortgage,  his  loss,  if  an}',  is  that 
his  security  has  been  impaired  or  lost.  His  interest  is  but  a  chose  in 
action  in  the  nature  of  a  security,  which  he  may  insure,  so  that  in  case 
of  destruction  of  or  damage  to  the  property  upon  which  his  securit}- 
rests,  he  will  be  indemnified  for  the  loss  he  actually  sustains.  So,  also, 
it  seems  to  us  that  the  owner  of  stock  in  a  corporation  for  pecuniary 
profit  has  a  like  interest  in  the  corporate  property.  A  mortgagee  of 
real  property  has  an  insurable  interest  in  the  mortgaged  premises,  based 
upon  the  interest  he  has  in  the  preservation  of  the  same  as  security 
for  a  debt.  He  has  a  legal  right  to  contract  for  indemnity  against  in- 
jury to  the  value  of  his  security. 

Upon^jirecisely  the  same  principle  a  stockholder  ma}-  contract  ibr- 
indemnity  against  injury  to_the  value  of  his  stock,  fur  he  also  has  an 


52  WARREN   V.   DAVENPORT  FIRE   INSURANCE   CO. 

of  the  corporate  property  from  destruction 


ia  its_  destruction  he  sustains  loss  in  so  far  as  the  value 
of  his  stock  is  depreciated^  in  consequence  thereof,  or  his  dividends 
cut  oflfL 

The  argument  that,  if  this  is  allowed,  owners  of  stock  worth  not 
more  than  ten  per  cent  upon  its  nominal  value  may  be  insured  at  its 
par  value,  and  in  case  of  loss  by  fire  such  par  value  of  the  stock  re- 
covered from  the  insurer  seems  to  us  to  be  unsound.  Without  entering 
into  a  discussion  in  detail  of  what  would  be  the  exact  measure  of  re- 
covery in  such  case,  we  simply  answer  that  no  more  than  the  actual 
loss  sustained  is,  in  any  case  recoverable.  This  rule  is  well  established, 
and  rests  upon  just  principles.  See  Angell  on  Fire  and  Life  Ins.,  ch. 
11,  and  cases  cited  in  notes. 

The  question  under  consideration  has  not  received  direct  judicial 
determination  in  any  of  the  States,  so  far  as  we  have  been  able  to 
discover.  The  case  of  Phillips  \.  Knox  County  Ins.  Co.,  20  Ohio, 
174,  is  cited  and  claimed  as  an  authorit\-  against  the  right  of  a  stock- 
holder to  insure.  The  decision  in  that  case,  as  a  careful  examination 
of  the  same  fully  shows,  was  made  entirely  upon  a  construction  of  the 
charter  of  the  insurance  company,  which  gave  a  lien  on  the  insured 
property,  including  the  land  on  which  the  buildings  stand.  By  the 
charter  a  sale  of  the  insured  propert}*  rendered  the  policy  void,  and 
the  ninth  section  declared,  that  if  the  insured  have  a  less  estate  than 
an  unincumbered  title  in  fee  simple  to  the  buildings  insured  and  the 
lands  covered  by  the  same,  the  policy  shall  be  void,  unless  the  true 
title  of  the  insured  and  the  incumbrances  be  expressed  in  the  policy 
and  the  application  therefor.  The  plaintiff  insured  as  owner  of  the 
property,  which  in  fact  belonged  to  a  corporation  of  which  he  was  a 
stockholder,  and  the  court  held  that,  "  where  a  building  and  the  land 
on  which  it  stands  is  the  property  of  an  incorporated  company,  the 
stockholders  could  not,  under  the  provisions  of  the  defendant's  charter, 
insure  such  property  as  their  individual  property  in  the  defendant's 
company." 

Under  the  charter  of  that  compan}-,  a  mortgagee  even,  insuring  the 
property  as  his  own,  would  likewise  be  defeated  in  a  recoveiy.  So  the 
owner  in  fee  simple  could  not  recover  if  the  property  was  incumbered 
and  the  incumbrance  not  set  forth  in  the  polic}-.  And  of  course  the 
same  result  must  follow  where  a  stockholder  insures  corporate  property 
as  his  own  individual  property.  The  decision  in  that  case  goes  no 
further  than  this,  and  is  no  authorit}*  in  support  of  the  proposition, 
that  a  stockholder  has  no  insurable  interest  in  the  property  of  the  com- 
pany, and,  hence,  has  no  bearing  upon  the  question  before  us. 

The  judgment  of  the  district  court  is  Reversed. 


FAIRFIELD    COUNTY   TURNPIKE    CO.    V.    THORP.  53 


FAIRFIELD   COUNTY  TURNPIKE  CO.  v.  THORP. 

1839.     13  Conn.  173.1 

ASSUMPSIT  on  stock  subscription.  Defendant  offered  to  prove  an 
admission  made  by  one  Hickok,  a  stockholder  in  the  plaintiff  corpo- 
ration. The  evidence  was  excluded.  Verdict  for  plaintiff.  Motion 
for  a  new  trial. 

Dutton,  for  defendant. 

Bissell  and  Booth,  for  plaintiff. 

WILLIAMS,  C.  J.  .  .  .  It  is  claimed,  that  Hickok  being  a  stockholder 
in  the  company,  his  declarations  are  admissible  as  the  confessions  of  a 
party.  That  the  confessions  of  the  part}'  on  the  record  may  be  given 
in_evidence.  is  certainly  true.  Testimom-  of  this  kind  proceeds  upon 
the  ground  that  it  is  not  to  be  presumed  that  persons  will  admit  anything 
against  their  interests.  There  are  cases,  however,  where  the  party  on 
the  record  has  really  no  interest,  or  at  most  a  mere  nominal  interest ; 
as  where  a  person  has  assigned  a  note  without  recourse ;  where  a 
partnership  is  dissolved,  and  one  is  to  discharge  the  debts,  &c.  ;  in 
which  cases,  this  evidence  is  admitted,  but  with  reluctance.  In  New- 
York  it  has  been  held,  that  the  admissions  of  partners  after  a  dissolu- 
tion, cannot  be  given  in  evidence  against  a  co-partner,  except  to  pre- 
A-eut  the  operation  of  the  statute  of  limitations.  Hopkins  v.  Bank, 
7  Cow.  650,  653  ;  Gleason  &  al.  v.  Clark,  admr.  9  Cow.  57  ;  Hackley  v. 
Patrick  &  al.  3  Johns.  Rep.  536.  We  have  adhered  to  the  English  rule 
in  admitting  the  evidence,  although  in  certain  cases  holding  that  it  was 
entitled  to  no  weight.  Coit  v.  Tracy,  9  Conn.  Rep.  1,  8  Conn. 
Rep.  268,  277.  It  becomes  important  to  inquire,  in  this  case,  whether 
Hickok  is  a  party  upon  the  record.  It  he  is,  then  any  single  share- 
holder in  a  bank  of  any  amount  of  capital  is  a  party  to  any  suit  brought 
by  the  bank,  and  his  declarations  are  admissible.  Whatever  may  be 
said  as  to  the  shareholders  in  corporations  being  parties  in  fact  or 
parties  in  interest,  it  is  certain  they  are  not  parties  upon  the  record. 
Tjie_rgcord  speaks  only  of  the  artificial,  intangjhle»_bejyQg  created  by 
the  act  of  incorporation^  In  corporations  of  this  character,  it  speaks  of 
and  knows  no  individual.  There  are  cases,  however,  in  which  courts 
have  drawn  aside  the  veil  and  looked  at  the  character  of  the  individual 
corporators ;  particularly  when  the  question  arises  as  to  the  jurisdic- 
tion of  the  court.  This  has  been  done  by  the  supreme  court  of  the 
United  States  the  better  to  carry  into  effect  the  spirit  of  the  constitu- 
tion, giving  the  courts  of  the  United  States  jurisdiction  in  suits  between 
inhabitants.  Bank  of  the  United  States  v.  Deveaux,  5  Cranch,  91,  2. 
But  this  is  confined  to  the  question  of  jurisdiction,  and  has  never  been 

1  Statement  abridged.  Arguments  omitted.  Only  so  much  of  the  opinion  is 
given  as  relates  to  one  point. — ED. 


54  FAIRFIELD   COUNTY   TURNPIKE   CO.   V.   THORP. 

extended  further.  Bank  of  Augusta  v.  Earle,  13  Pet.  586.  So,  too, 
this  court  has  holden,  that  a  judge  shall  not  sit  who  is  within  the  pro- 
hibited degrees  of  relationship  to  a  member  of  a  corporation  ;  and  this 
to  carry  into  effect  the  spirit  of  the  act  and  to  prevent  any  suspicion  of 
partiality.  These  cases,  however,  rather  form  exceptions  to  the  rule 
than  create  a  new  one.  We  see  nothing  in  the  case  before  us  which 
ought  to  induce  the  court  to  extend  the  rule  of  law  beyond  its  letter. 
On  the  other  hand,  there  are  strong  objections  to  this  evidence.  The 
first  results  from  the  nature  of  the  evidence  itself.  For  although  the 
declarations  of  the  party  in  interest  against  his  interest,  if  fairly  repre- 
sented, arc  strong  evidence  against  him  ;  yet  there  is  so  much  suspicion 
often  attached  to  it  from  the  misapprehension  of  the  hearer  and  the 
treachery  of  mcmoiy  in  the  reporter,  to  say  nothing  of  the  danger 
arising  from  a  prejudiced  mind,  that  it  is  often  to  be  received  with  many 
grains  of  allowance.  In  cases  of  this  kind  the  interest  is  frequently  so 
minute  as  to  create  no  presumption,  or  a  very  slight  one,  that  the  per- 
son would  not  make  such  a  declaration  because  against  his  interest. 
On  the  contrary,  many  circumstances  too  minute  for  explanation, 
might  lead  to  a  bias  much  stronger  than  such  pecuniary  interest. 
Every  day's  experience  will  shew  us  that  the  prejudices  and  alienations 
which  arise  in  the  intercourse  of  business,  entirely  overpower  the  slight 
interest  of  small  shareholders ;  and  although  this  would  be  no  reason 
for  excluding  evidence  clearly  admissible,  yet  it  may  be  proper,  in 
considering  whether  evidence  excluded  by  the  letter  of  the  rule  is 
•within  its  spirit.  Besides,  the  knowledge  of  individual  stockholders  is 
generally  so  limited  aa  to  make  it,  of  unimportance. 

It  is  said,  however,  that  all  these  are  proper  considerations  for  the 
jury  to  weigh.  But  when  we  consider  the  surprise  upon  the  real  party 
from  testimony  of  this  kind  from  unexpected  quarters,  which  must  fre- 
quently happen,  and  the  embarrassments  occasioned  thereby,  the  m  u  1- 
titude  of  collateral  inquiries  which  might  often  arise  in  investigating 
the  iv.-il  connexion  of  the  persons  whose  admissions  are  offered  in 
evidence,  and  the  delay  attending  such  inquiries,  it  seems  to  us  that 
sue!)  evidence  would -more  often  mislead  than  guide  to  truth.  Tt  seems 
to  be  supposed,  that  because  the  individual  stockholder  cannot  be  com- 
pelled to  testify,  his  declarations  therefore  are  admissible  ;  but  it  does 
not  follow  that  the  declarations  of  any  person  who  cannot  be  compelled 
to  testify  on  account  of  his  interest  are  admissible  as  evidence.  Take 
the  case  of  bail,  of  a  feme  covert,  of  a  person  who,  by  his  answer, 
might  subject  himself  to  a  penalt}7  or  a  debt ;  their  declarations  are 
not  admissible  as  a  matter  of  course.  In  such  cases,  perhaps  a  court 
of  chancery,  upon  proper  application,  might  compel  a  disclosure.  Then 
there  would  be  no  surprise ;  and  such  terms  might  be  imposed  as  would 
render  it  safe.  We  know  that  in  England  it  has  been  decided  by  the 
court  of  King's  -Bench,  that  the  admissions  of  a  rated  parishioner  may 
be  evidence  in  a  suit  by  the  inhabitants  of  the  parish.  It  seems  to 
have  been  thus  first  decided  upon  the  ground  that  it  was  in  fact  a  suit 


WASHINGTON   INS.   CO.   V.    PRICE.  55 

jtgainst  the  inhabitants  themselves.  The  King  v.  Inhabitants  of 
Hardwick,  11  East,  578,  586.  There  the  suit  is,  in  name  as  well^  as 
injfact,  against  the  inhabitants  ;  and  the  property  of  the  individuals  is 
liable  to  be  taken  in  execution-^  McLoud  v.  Selby,  10  Conn.  Rep.  395. 
And  in  a  case  but  two  years  before,  Lord  Ellenborough  held,  that  in  an 
action  by  a  corporation,  what  any  individual  said  [referring  to  individ- 
ual corporators]  could  not  be  given  in  evidence,  although  he  did  not 
extend  the  rule  to  the  declarations  of  a  public  officer  of  the  corporation. 
The  Mayor  of  London  v.  Long,  1  Carapb.  22.  Before  either  of  these 
cases,  our  superior  court  had  decided  that  the  declarations  of  an  indi- 
vidual member  of  a  corporation,  even  although  he  was  an  officer  in  it, 
could  not  be  given  in  evidence.  Hartford  Sank  v.  Hart,  3  Day,  494. 
That  decision  has  ever  since  been  acquiesced  in  ;  and  it  is  by  the 
supreme  court  of  New  York  favourably  contrasted  with  the  English 
decisions.  Osgood  v.  Manhattan  Sank,  3  Cowen,  623.  And  upon  a 
careful  review,  we  are  not  disposed  to  question  the  propriet}-  of  what 
has  long  been  considered  our  settled  practice.  In  the  state  of  Maine, 
too,  a  similar  decision  has  been  made.  Polleys  v.  Ocean  Insurance 
Company,  2  Shep.  141. 

N~ew  trial  not  to  be  granted. 


WASHINGTON  INSURANCE  CO.  v.  PRICE. 

1823.     1  Hopkins,  N.  Y.  Chancery  Reports,  1. 

"  [BEFORE  SANFORD,  Chancellor.] 

This  cause  being  noticed  for  hearing,  the  chancellor  informed  the 
counsel  of  the  parties  that  he  was  a  stockholder  in  the  Washington 
Insurance  Company,  and  that  according  to  the  opinion  which  he  then 
entertained,  he  could  not  hear  the  cause :  but  he  expressed  a  desire 
that  the  question,  whether  he  ought  to  act  as  judge  in  the  cause  or  not, 
should  be  argued.  The  counsel  declined  to  argue  the  question,  and 
the  chancellor  this  da}'  gave  his  opinion. 

T-lie  sole  judge  of  this  court,  being  a  stockholder  in  the  incorporated 
company  which  institutes  this  suit,  can  he  proceed  or  act  as  judge  in 
the  cause? 

It  is  a  maxim  of  eveiy  code,  in  eveiy  country,  that  no  man  should 
be  judge  in  his  own  cause.  .  .  . 

But  it  has  been  said,  that  where  a  court  consisting  of  a  single  judge, 
has  exclusive  jurisdiction  of  the  subject  of  a  suit,  a  failure  of  justice 
would  take  place  if  the  judge  should  not  act  in  his  own  cause. 

A  failure  of  justice  may  take  place  if  he  should  not  act ;  as  it  also 
may  occur  if  he  should  decide  his  own  cause  :  but  it  belongs  to  the  power 


56  WASHINGTON   INS.   CO.   V.   PRICE. 

which  created  such  a  court  to  provide  another  in  which  this  judge  may 
be  a  part}' ;  and  whether  another  tribunal  is  established  or  not,  he  at 
least  is  not  entrusted  with  authority  to  determine  his  own  rights  or  his 
own  wrongs. 

By  the  third  section  of  the  act  concerning  the  court  of  chancery,  it 
is  provided,  u  That  where  the  chancellor  shall  be  a  party  to  a  suit  in 
chancery,  the  bill  shall  be  filed  before  the  chief  Justice  of  the  state, 
who  shall  thereupon  proceed,  in  like  manner,  as  the  chancellor  could  of 
right  do,  as  a  court  of  chancery  in  other  cases,  and  the  court  of  chan- 
cery shall  be  thereupon  held  in  that  case  before  the  chief  Justice,  and 
shall  proceed  to  hear  and  determine  the  same,  according  to  the  course 
and  usage  of  the  said  court." 

In  this  case,  an  incorporated  compan}*  sues  by  its  corporate  name. 
The  company  consists  of  persons  who  are  joint  proprietors  of  a  com- 
mon fund  in  various  amounts  ;  the  suit  is  the  act  of  these  persons  or 
their  officers  ;  and  the  gain  or  loss  which  may  result  from  it  will  be  the 
gain  or  loss  of  each  stockholder,  according  to  the  extent  of  his  inter- 
est in  the  fund.  The  corporation  is  the  party  in  form  :  the  stockhold- 
ers are__the  parties  in  substance.  When  a  corporation  is  thus  a  party 
to  a  suit,  it  is  regarded  as  one  sole  party,  so  long  as  it  is  not  necessary 
to  the  ends  of  justice  that  the  persons  who  use  the  corporate  name 
should  be  disclosed.  But  whenever  the  ends  of  justice  require  thntJJia 
/persons  who  use  the  name  of  a  corporation  should  bp  kpown^^tho— in~ 
qiiiry  is  made,  and  the  stockholders  uiid_thein. olljccrs  are  cousidereil 
and  treated  as  they  are  in  fact,  the  real  litigants  in  the  suit. 
~The  term  party,  though  usually  applied  to  those  who  are  named  as 
such  in  the  forms  of  a  suit,  has  no  technical  sense  more  restricted  than 
its  ordinary  signification.  In  the  general  sense  of  the  term,  it  seems 
property  applied  to  every  person  who  has  an  interest  in  the  conduct  and 
event  of  a  litigation,  whether  he  is  a  party  in  form,  a  party  in  interest, 
or  a  party  not  before  the  court.  The  forms  of  proceedings  in  our 
courts,  often  present  nominal  parties  who  have  no  real  interest  in  the 
subject  of  a  suit ;  but  when  it  is  necessaiy  for  any  purpose  of  justice 
that  the  real  parties  not  named  should  be  brought  into  view,  this  is 
done,  and  the  persons  really  interested  are  either  made  parties  in  form, 
or  their  interests  are  recognized  with  the  same  effect  as  if  their  names 
had  appeared  in  the  proceedings.  Thus,  while  forms  are  preserved, 
substance  is  not  disregarded,  and  parties  in  fact,  as  well  as  parties  in 
'  form,  arc  treated  according  to  the  real  state  of  their  rights,  in  the  sub- 
ject of  a  suit.  These  distinctions  are  known  and  familiar :  and  the  terms 
of  the  statute  seem  sufficiently  ample  to  embrace  parties  of  all  descrip- 
tions. The  name  of  a  corporation  being  used  to  comprehend  all  the 
stockholders  in  one  compendious  description,  it  would  be  quite  as  rea- 
sonable to  say  that  the  nominal  plaintiff  and  the  casual  ejector,  are 
the  only  parties  in  an  action  of  ejectment,  as  to  say  that  the  body 
corporate,  existing  only  in  certain  legal  capacities,  is  the  only  party 
which  can  be  recognized  by  a  court  of  justice. 


WASHINGTON   INS.   CO.   V.   PRICE.  57 

If  the  terms,  part}'  to  a  suit,  can  be  in  any  case  understood  in  this 
general  sense,  there  is  the  strongest  reason  to  believe  that  they  are  so 
used  in  this  statute.  The  object  of  the  legislature  plainly  was,  to 
provide  a  judge  who  should  hear  and  determine  the  causes  which  the 
chancellor  could  not  decide,  and  these  were  the  chancellor's  own  causes 
in  equity.  The  chancellor  could  not  decide  any  cause  in  which  jiejvas 
interested;  and  whether  his  interest  should  appear,  by  making  hjrn_a. 
party  in  form,  or  by  his  own  avowal,  or  in  any  other  manner,  the  prin- 
ciple  was  the  same ;  he  was  in  substance,  a  party,  and  for  tbatjveason_ 
coil  Id  not  act.,  In  this  state  of  things  this  statute  was  enacted  to  give 
redress.  It  is  therefore  most  reasonable  to  suppose  that  the  remedy 
was  intended  to  extend  to  the  whole  exigency  of  the  case :  and  the 
terms  party  to  a  suit  are  reconciled  with  this  object,  if  we  give  to  them 
the  same  sense  in  both  cases,  and  consider  the  causes  which  are  to  be 
decided  b}-  the  chief  Justice  as  the  causes  which  the  chancellor  cannot 
determine,  because  he  is  a  party  either  in  form  or  in  effect.  If  this  be 
not  so,  the  legislature  have  accomplished  but  a  part  of  their  object ; 
and  wherever  a  party  in  effect,  does  not  appear  so  in  name,  as  in  all 
cases  of  corporations  and  man}'  cases  of  trusts,  the  chancellor  may  be 
that  party,  and  the  case  would  be  without  the  redress  of  this  statute. 
But  the  object  of  the  legislature  is  completely  attained,  if  we  consider 
the  terms,  pail}"  to  a  suit,  to  be  used  here  in  the  sense  in  which  the 
same  terms  are  certainly  used  when  we  speak  of  the  principle  that  a 
judge  is  incompetent  to  determine  a  suit  in  which  he  is  a  party. 

This  construction  is  much  corroborated,  by  an  alteration  which  this 
statute  has  received  since  its  first  enactment.  In  the  first  act  passed 
on  the  fourth  day  of  April,  1800,  and  in  the  first  revision  of  that  act  in 
1801,  the  terms  of  this  provision  were,  that  where  the  "  chancellor  shall 
be  a  part}'  to  a  suit  in  chancery,  either  as  complainant  or  defendant,  the 
'  bill  shall  be  filed  before  the  chief  Justice."  While  these  were  the  terms 
of  the  law,  there  might  have  been  reason  to  contend  that  it  was  con- 
fined to  cases,  in  which  the  chancellor  was  named  as  complainant  or  as 
defendant.  But  in  the  revision  of  1813,  the  existing  law,  the  words 
"  as  complainant  or  defendant,"  are  omitted,  and  the  provision  now 
extends  to  all  cases  in  which  the  chancellor  is  a  party  to  a  suit,  and,  as 
I  conceive,  to  all  cases  in  which,  though  neither  complainant  nor  de- 
fendant, he  is  a  real  party  to  the  subject  of  litigation. 

Such  is  my  own  view  of  this  question  ;  but  it  appears  that  my  immedi- 
ate predecessor,  and  the  late  chief  Justice,  held  a  different  opinion. 
Their  opinion  is  found  in  the  case  of  Stewart  v.  The  Mechanics  and 
Farmers'  Bank,  19  John.  501.  In  that  case,  the  chancellor  was  a 
stockholder  in  the  bank ;  and  this  fact  appearing,  the  parties  con- 
sented that  the  hearing  of  the  cause  should  proceed.  Upon  a  consul- 
tation between  the  chancellor  and  the  chief  Justice,  they  were  both  of 
opinion  that  the  chancellor  was  not  a  party  to  the  suit  within  the  pro- 
vision of  the  statute  ;  and  the  chancellor  proceeded  to  determine  the 
cause.  The  same  cause  was  removed  to  the  court  of  errors ;  but  this 


58  BANK  OF  UNITED  STATES  V.  DEVEAUX. 

question  was  not  raised  or  considered  in  that  court.  It  is  a  question 
which  has  not  been  determined  by  the  court  of  errors  ;  but  it  has  been 
decided  by  the  opinions  of  two  of  our  most  eminent  judges.  I  have 
the  highest  respect  for  the  late  chancellor,  and  the  late  chief  Justice. 
I  delight  to  honor  them  for  the  ability,  intelligence,  and  integrity  with 
which  they  discharged  their  respective  trusts  ;  and  I  feel  that  I  have 
strong  authority,  when  I  am  able  to  produce  their  opinions  in  support  of 
inv  own  decisions.  But  where  my  own  judgment  is  clear  and  undoubt- 
ing,  I  cannot  surrender  it  to  any  opinion  except  that  of  a  superior 
tribunal. 

My  opinion  is,  that  the  chancellor  is  a  party  to  a  suit  in  _tfais_court_by 
or  against  a  corporate  company,  in  which  he  is  a  stockholder ;  that 
"BucITa  suit  is  his  own  cause,  to  the  extent  of  his  interest  as  a  stock- 
holder ;  ai.d  that  he  cannot  dctmiiine  such  a  suit.  I  am  also  of  opin- 
ion, that  the  chief  Justice  has  jurisdiction  of  such  suits ;  and  the  circuit 
courts  are  now  also  open  as  courts  of  equity. 

This  suit  having  been  instituted  before  I  was  chancellor,  I  merely 
direct  at  present,  that  all  proceeding  in  it  before  me,  cease.  If  the 
suit  shall  proceed  before  the  chief  Justice,  it  will  be  determined,  as  if 
it  bad  been  commenced  before  him,  according  to  the  statute. 


BANK  OF  UNITED   STATES   v.  DEVEAUX  ET  AL. 

1809.     5  Crunch,  U.  S.  61.1 

ERROR  to  the  U.  S.  Circuit  Court  for  the  District  of  Georgia. 

The  declaration  describes  the  plaintiffs  as  "  The  President,  Directors 
and  Compan}',  of  the  Bank  of  the  United  States,  .  .  .  established 
under  an  act  of  congress.  .  .  ."  At  the  close  of  the  declaration  is  the 
following  allegation  :  "  And  3*0111-  petitioners  aver  that  they  are  citizens 
of  the  State  of  Pennsylvania,  and  the  said  Peter  Deveaux  and  Thomas 
Robertson  are  citizens  of  the  State  of  Georgia." 

Plea  in  abatement,  denying  the  jurisdiction  of  the  U.  S.  Circuit 
Court.  Demurrer.  Judgment  for  defendants  upon  the  demurrer. 

Binney  and  Harper,  for  plaintiffs  in  error. 

P.  B.  Key,  and  Jones ^  contra. 

MARSHALL,  C.  J.     Two  points  have  been  made  in  this  cause. 

1.  That  a  corporation  composed  of  citizens  of  one  State  ma}'  sue  a 
citizen  of  another  State  in  the  federal  courts. 

2.  That  a  right  to  sue  in  those  courts  is  conferred  on  this  bank  by 
the  law  which  incorporates  it. 

The  last  point  will  be  first  considered.  .  .  . 

1  Statement  abridged.     Arguments  omitted.  —  ED. 


BANK   OF   UNITED   STATES   V.   DEVEAUX.  59 

[The  court  holds,  that  no  right  is  conferred  on  the  bank,  by  the  act 
of  incorporation,  to  sue  in  the  federal  courts.] 

2.    The  other  point  is  one  of  much  more  difficult}-. 

The  jurisdiction  of  this  court  being  limited,  so  far  as  respects  the 
character  of  the  parties  in  this  particular  case,  "to  controversies 
between  citizens  of  different  States,''  both  parties  must  be  citizens  to 
come  within  the  description. 

That  invisible,  intangible,  and  artificial  being,  that  mere  legal  entity, 
a  corporation  aggregate,  is  certainly  not  a  citizen ;  and,  consequently. 
cannot  sue  or  be  sued  in  the  courts  of  the  United  States,  unless  the 
rights  of  the  members,  in  this  respect,,  can  be  exercised  in  their  cor- 
porate name.  If  the  corporation  be  considered  as  a  mere  faculty,  and 
not  as  a  company  of  individuals,  who,  in  transacting  their  joint  con- 
cerns, may  use  a  legal  name,  they  must  be  excluded  from  the  courts  of 
the  Union. 

The  duties  of  this  court,  to  exercise  jurisdiction  where  it  is  conferred, 
and  not  to  usurp  it  where  it  is  not  conferred,  are  of  equal  obligation. 
The  constitution,  therefore,  and  the  law,  are  to  be  expounded,  without  a 
leaning  the  one  way  or  the  other,  according  to  those  general  principles 
which  usually  govern  in  the  construction  of  fundamental  or  other  laws. 

A  constitution,  from  its  nature,  deals  in  generals,  not  in  detail.  Its 
framers  cannot  perceive  minute  distinctions  which  arise  in  the  progress 
of  the  nation,  and  therefore  confine  it  to  the  establishment  of  broad 
and  general  principles. 

The  judicial  department  was  introduced  into  the  American  constitu- 
tion under  impressions,  and  with  views,  which  are  too  apparent  not  to 
be  perceived  by  all.  However  true  the  fact  may  be,  that  the  tribunals 
of  the  States  will  administer  justice  as  impartially  as  those  of  the 
nation,  to  parties  of  every  description,  it  is  not  less  true  that  the  con- 
stitution itself  either  entertains  apprehensions  on  this  subject,  or  views 
with  such  indulgence  the  possible  fears  and  apprehensions  of  suitors, 
that  it  has  established  national  tribunals  for  the  decision  of  contro- 
versies between  aliens  and  a  citizen,  or  between  citizens  of  different 
States.  Aliens,  or  citizens  of  different  States,  are  not  less  susceptible 
of  these  apprehensions,  nor  can  the}"  be  supposed  to  be  less  the  objects 
of  constitutional  provisions,  because  they  are  allowed  to  sue  by  a  cor- 
porate name.  That  name,  indeed,  cannot  be  an  alien  or  a  citizen ; 
but  the  persons  whom  it  represents  may  be  the  one  or  the  other ;  and 
the  controversy  is,  in  fact  and  in  law,  between  those  persons  suing  in 
their  corporate  character,  by  their  corporate  name,  for  a  corporate 
right,  and  the  individual  against  whom  the  suit  may  be  instituted.  Suh-_ 
stantially  and  ^essentially,  the  parties  in  such  a  case,  whejg_th&  r»pm- 
bers  of  the  corporation  are  aliens,  or  citizens  of  a  different  Statejrotn^ 
the  opposite  party,  come  within  the  spirit  and  terms  of  the  jurisdiction 
'conTerrecTby  the  constitution  on  the  national  tribunals. 
~"  Such  has  been  the  universal  understanding  on  the  subject.  Repeat- 
edly has  this  court  decided  causes  between  a  corporation  and  an  iudi- 


60  BANK    OF   UNITED   STATES   V.   DEVEAUX. 

vicinal  without  feeling  a  doubt  respecting  its  jurisdiction.  Those 
decisions  are  not  cited  as  authority ;  for  they  were  made  without  con- 
sidering this  particular  point;  but  they  have  much  weight,  as  they 
show  that  this  point  neither  occurred  to  the  bar  or  the  bench  ;  and  that 
the  common  understanding  of  intelligent  men  is  in  favor  of  the  right  of 
incorporated  aliens,  or  citizens  of  a  different  State  from  the  defendant, 
to  sue  in  the  national  courts.  It  is  by  a  course  of  acute,  metaphysical 
and  abstruse  reasoning,  which  has  been  most  ably  employed  on  this 
occasion,  that  this  opinion  is  shaken. 

As  our  ideas  of  a  corporation,  its  privileges  and  its  disabilities,  are 
derived  entirely  from  the  English  books,  we  resort  to  them  for  aid,  in 
ascertaining  its  character.  It  is  defined  as  a  mere  creature  of  the  law, 
invisible,  intangible,  and  incorporeal.  Yet,  when  we  examine  the  sub- 
ject further,  we  find  that  corporations  have  been  included  within  terms 
of  description  appropriated  to  real  persons. 

The  statute  of  Henry  VIII.,  concerning  bridges  and  highways,  enacts, 
that  bridges  and  highways  shall  be  made  and  repaired  by  the  "  inhab- 
itants of  the  city,  shire,  or  riding,"  and  that  the  justices  shall  have 
power  to  tax  every  "  inhabitant  of  such  citj-,"  &c.,  and  that  the  col- 
lectors ma}'  "  distrain  every  such  inhabitant  as  shall  be  taxed  and 
refuse  payment  thereof,  in  his  lands,  goods  and  chattels." 

Under  this  statute  those  have  been  construed  inhabitants  who  hold 
Jands  within  the  city  where  the  bridge  to  be  repaired  lies,  although  they 
reside  elsewhere. 

Lord  Coke  says,  "every  corporation  and  body  politic  residing  in  any 
county,  riding,  cit}',  or  town  corporate,  or  having  lands  or  tenements  in 
any  shire,  quce  propriis  manibus  et  sumptibus  possident  et  habent,  are 
said  to  be  inhabitants  there,  within  the  purview  of  this  statute." 

The  tax  is  not  imposed  on  the  person,  whether  he  be  a  member  of 
the  corporation  or  not,  who  may  happen  to  reside  on  the  lands ;  but  is 
imposed  on  the  corporation  itself,  and,  consequently,  this  ideal 
encejs_considered  as  an  inhabitant,  when  the  general  spirit  and 
of  the  law  requiresjtu 

In  the  case  of  The  King  v.  Gardner,  reported  by  Cowper,  79,  a  cor- 
poration was  decided,  by  the  court  of  king's  bench,  to  come  within 
the  description  of  "occupiers  or  inhabitants."  In  that  case  the  poor 
rates,  to  which  the  lands  of  the  corporation  were  declared  to  be  liable, 
were  not  assessed  to  the  actual  occupant,  for  there  was  none,  but  to  the 
corporation.  And  the  principle  established  by  the  case  appears  to  be, 
that  the  poor  rates,  on  vacant  ground  belonging  to  a  corporation,  may 
be  assessed  to  the  corporation,  as  being  inhabitants  or  occupiers  of  that 
ground.  In  this  case  Lord  Mansfield  notices  and  overrules  an  incon- 
siderate dictum  of  Justice  Yates,  that  a  corporation  could  not  be  an 
inhabitant  or  occupier. 

These  opinions  are  not  precisely  in  point ;  but  the}'  serve  to  show 
that,  for  the  general  purposes  and  objects  of  a  law,  this  invisible, 
incorporeal  creature  of  the  law  may  be  considered  as  having  corporeal 
qualities. 


BANK   OF   UNITED   STATES   V.   DEVEAUX.  61 

It  is  true  that,  as  far  as  these  cases  go,  they  serve  to  show  that  the 
corporation  itself,  in  its  incorporeal  character,  may  be  considered  as  an 
inhabitant  or  an  occupier ;  and  the  argument  from  them  would  be  more 
strong  in  favor  of  considering  the  corporation  itself  as  endowed  for  this 
special  purpose  with  the  character  of  a  citizen,  than  to  consider  the 
character  of  the  individuals  who  compose  it  as  a  subject  which  the 
court  can  inspect,  when  the\T  use  the  name  of  the  corporation,  for  the 
purpose  of  asserting  their  corporate  rights.  Still  the  cases  show  that 
this  technical  definition  of  a  corporation  does  not  uniformly  circum- 
scribe its  capacities,  but  that  courts,  for  legitimate  purposes,  will  con- 
template it  more  substantially. 

There  is  a  case,  however,  reported  in  12  Mod.  669,  which  is  thought 
precisely  in  point.  The  corporation  of  London  brought  a  suit  against 
Wood,  by  their  corporate  name,  in  the  mayor's  court.  The  suit  was 
brought  by  the  mayor  and  commonalty,  and  was  tried  before  the  mayor 
and  aldermen.  The  judgment  rendered  in  this-  cause  was  brought 
before  the  court  of  king's  bench  and  reversed,  because  the  court  was 
deprived  of  its  jurisdiction  by  the  character  of  the  individuals  who 
were  members  of  the  corporation. 

In  that  case  the  objection  that  a  corporation  was  an  invisible,  intan- 
gible thing,  a  mere  incorporeal  legal  entity,  in  which  the  characters  of 
the  individuals  who  composed  it  were  completely  merged,  was  urged 
and  was  considered.  The  judges  unanimously  declared  that  they  could 
look  beyond  the  corporate  name,  and  notice  the  character  of  the  indi- 
vidual. »In  the  opinions,  which  were  delivered  seriatim,  several  cases 
are  put  which  serve  to  illustrate  the  principle  and  fortify  the  decision. 

The  case  of  The  Mayor  and  Commonalt}1  v.  Wood  is  the  stronger 
because  it  is  on  the  point  of  jurisdiction.  It  appears  to  the  court  to 
be  a  full  authority  for  the  case  now  under  consideration.  It  seems  not 
possible  to  distinguish  them  from  each  other. 

If,  then,  the  congress  of  the  United  States  had  in  terms  enacted 
that  incorporated  aliens  might  sue  a  citizen,  or  that  the  incorporated 
citizens  of  one  State  might  sue  a  citizen  of  another  State,  in  the  federal 
courts,  by  its  corporate  name,  this  court  would  not  have  felt  itself  justi- 
fied in  declaring  that  such  a  law  transcended  the  constitution. 

The  controversy  is  substantially  between  aliens,  suing  by  a  corporate 
name,  and  a  citizen,  or  between  citizens  of  one  State,  suing  by  a  cor- 
porate name,  and  those  of  another  State.  When  these  are  said  to  be 
substantially  the  parties  to  the  controversy,  the  court  does  not  mean  to 
liken  it  to  the  case  of  a  trustee.  A  trustee  is  a  real  person  capable  of 
being  a  citizen  or  an  alien,  who  has  the  whole  legal  estate  in  himself. 
At  law,  he  is  the  real  proprietor,  and  he  represents  himself  and  sues  in 
his  own  right.  But  in  this  case  the  corporate  name  represents  persons 
who  are  members  of  the  corporation. 

If  the  constitution  would  authorize  congress  to  give  the  courts  of 
the  Union  jurisdiction  in  this  case,  in  consequence  of  the  character  of 
the  members  of  the  corporation,  then  the  Judicial  Act  ought  to  be  con- 


62  MARSHALL   V.   BALTIMORE    AND    OHIO   RAILROAD. 

strued  to  give  it.  For  the  term  citizen  ought  to  be  understood  as  it 
is  used  in  the  constitution,  and  as  it  is  used  in  other  laws.  That  is,  to 
describe  the  real  persons  who  come  into  court,  in  this  case,  under  their 
corporate  name. 

That  corporations  composed  of  citizens  are  considered  by  the  legis- 
lature as  citizens,  under  certain  circumstances,  is  to  be  strongly  inferred 
from  the  Registering  Act.  It  never  could  be  intended  that  an  Ameri- 
can registered  vessel,  abandoned  to  an  insurance  company  composed  of 
citizens,  should  lose  her  character  as  an  American  vessel ;  and  yet  this 
would  be  the  consequence  of  declaring  that  the  members  of  the  cor- 
poration were,  to  every  intent  and  purpose,  out  of  view,  and  merged  in 
the  corporation. 

The  fnnrtjgels  itself  authorized  by  the  case  in  12  Mod,  (on  a  ques- 
tion of  jurisdiction),  to  look  to  tlie__character  of  the  individuals  who 
compose  the  corporation,  and  theythink  that  the  precedents'  of  this 
jcourt,  though  they  were  not  decisions  on  argument,  ought  not  to  be 
absolutely  disregarded. 

V 

If  a  corporation  may  sue  in  the  courts  of  the  Union,  the  court  is  of 
opinion  that  the  averment  in  this  case  is  sufficient. 

Being  authorized  to  sue  in  their  corporate  name,  the}'  could  make  the 
averment,  and  it  must  apply  to  the  plaintiffs  as  individuals,  because  it 
could  not  be  true  as  applied  to  the  corporation. 


Judgment  reversed;  plea  in  abatement   overruled,  and  cause 
remanded. 


GRIER,  J.,  IN  MARSHALL   v.   BALTIMORE   &  OHIO 
RAILROAD   COMPANY. 

1853.     16  Howard,  327-329. 

"A  CORPORATION*,  it  is  said,  is  an  artificial  person,  a  mere  legal 
entity,  invisible  and  intangible." 

This  is  no  doubt  metaphysically  true  in  a  certain  sense.  The  infer- 
ence, also,  that  such  an  artificial  entity  "cannot  be  a  citizen"  is  a 
logical  conclusion  from  the  premises  which  cannot  be  denied. 

But  a  citizen  who  has  made  a  contract,  and  has  a  "  controversy  " 
with  a  corporation,  may  also  say,  with  equal  truth,  that  he  did  not  deal 
with  a  mere  metaphysical  abstraction,  but  with  natural  persons ;  that 
his  writ  has  not  been  served  on  an  imaginary  entity,  but  on  men  and 
citizens  ;  and  that  his  contract  was  made  with  them  as  the  legal  repre- 
sentatives of  numerous  unkjiown  associates,  or  secret  and  dormant 
partners. 

The  necessities  and  conveniences  of  trade  and  business  require  that 
such  numerous  associates  and  stockholders  should  act  by  representa- 


MARSHALL  V.   BALTIMORE   AND   OHIO   RAILROAD.  63 

tion,  and  have  the  faculty  of  contracting,  suing,  and  being  sued  in  a 
factitious  or  collective  name.  But  these  important  faculties,  conferred 
on  them  by  state  legislation,  for  their  own  convenience,  cannot  be 
wielded  to  deprive  others  of  acknowledged  rights.  It  is  not  reasonable 
that  those  who  deal  with  such  persons  should  be  deprived  of  a  valuable 
privilege  by  a  syllogism,  or  rather  sophism,  which  deals  subtly  with 
words  and  names,  without  regard  to  the  things  or  persons  they  are 
used  to  represent. 

Nor  is  it  reasonable  that  representatives  of  numerous  unknown  and 
ever-changing  associates  should  be  permitted  to  allege  the  different 
citizenship  of  one  or  more  of  these  stockholders,  in  order  to  defeat  the 
plaintiff's  privilege.     It  is  true  that  these  stockholders  are  corporators, 
and  represented  by  this  "juridical  person,"  and  come  under  the  shadow 
of  its  name.     But  for   all   the  purposes  of  acting,   contracting,  and  - 
judicial  remed}',  they  can  speak,  act,  and  plead,  only  through'  their 
representatives  or  curators     For  the  purposes  of  a  suit  or  controversy, 
the  persons  represented  b}'  a  corporate  name  can  appear  only  by  attor- 
ney, appointed  by  its  constitutional  organs.    The  individual  or  personal 
appearance  of  each  and  every  corporator  would  not  be  a  compliance 
with  the  exigency  of  the  writ  of  summons  or  distringas.     Though, 
nominally,  they  are  not  really  parties  to  the  suit  or  controversy.     In 
courts  of  equity,  where  there  are  very  numerous  associates  having  all 
the  same  interest,  they  may  plead  and  be  impleaded  through  persons 
representing  their  joint  interests ;    and,  as  in  the  case  between  the 
northern  and  southern  branches  of  the  Methodist  Church,  lately  decided   / 
by  this  court,  the  fact  that  individuals  adhering  to  each  division  were   \ 
known  to  reside  within  both  States  of  which  the  parties  to  the  suit  were     * 
citizens,  was  not  considered  as  a  valid  objection  to  the  jurisdiction. 

In  courts  of  law,  an  act  of  incorporation  and  a  corporate  name  are 
necessary  to  enable  the  representatives  of  a  numerous  association  to 
sue  and  be  sued.  "And  this  corporation  can  have  no  legal  existence 
out  of  the  bounds  of  the  sovereignty  by  which  it  is  created.  It  exists 
only  in  contemplation  of  law  and  by  force  of  the  law ;  and  where  that 
law  ceases  to  operate,  the  corporation  can  have  no  existence.  It  must  ,- 
dwell  in  the  place  of  its  creation."  Bank  of  Augusta  v.  Earle,  13 
Pet.  519.  The  persons  who  act  under  these  faculties,  and  use  this 
corporate  name,  may  be  justly  presumed  to  be  resident  in  the  State 
which  is  the  necessary  habitat  of  the  corporation,  and  where  alone  they 
can  be  made  subject  to  suit;  and  should  be  estopped  in  equity  from 
averring  a  different  domicile  as  against  those  who  are  compelled  to  -' 
seek  them  there,  and  can  find  them  there  and  nowhere  else.  If  it 
were  otherwise,  it  would  be  in  the  power  of  every  corporation,  by 
electing  a  single  director  residing  in  a  different  State,  to  deprive 
citizens  of  other  States  with  whom  they  have  controversies,  of  this 
constitutional  privilege,  and  compel  them  to  resort  to  state  tribunals 
in  cases  in  which,  of  all  others,  such  privilege  may  be  considered  most 
valuable. 


64  MARSHALL   V.   BALTIMORE   AND   OHIO   RAILROAD. 

But  it  is  contended  that,  notwithstanding  the  court,  in  deciding  the 
question  of  jurisdiction,  will  look  behind  the  corporate  or  collective 
name  given  to  the  part}',  to  find  the  persons  who  act  as  the  representa- 
tives, curators,  or  trustees,  of  the  association,  stockholders,  or  cestui 
que  trusts,  and  in  such  capacity  are  the  real  parties  to  the  controversy  ; 
yet  that  the  declaration  contains  no  sufficient  averment  of  their  citi- 
zenship. Whether  the  averment  of  this  fact  be  sufficient  in  law,  is 
merely  a  question  of  pleading.  If  the  declaration  sets  forth  facts  from 
which  the  citizenship  of  the  parties  may  be  presumed  or  legally  in- 
ferred, it  is  sufficient.  The  presumption  arising  from  the  halitat  of  a 
corporation  in  the  place  j)f  its  creation  being  conclusive  as  to  the  resi- 
lience or  citizenship  of  tliose_whp  use  the  corporate  mune,  and  exercise 
the  faculties  conferred  by  it,  the  allegation  that  the  u  defendants  are  a 
body  corporate  b}'  the  act  of  the  general  assembly  of  Mainland,"  is  a 
sufficient  averment  that  the  real  defendants  are  citizens  of  that  State.1 

1  "  A  suit  may  be  brought  in  the  Federal  courts  by  or  against  a  corporation,  but  in 
such  a  case  it  is  regarded  as  a  suit  brought  by  or  against  the  stockholders  of  the  cor- 
poration ;  and,  for  the  purposes  of  jurisdiction,  it  is  conclusively  presumed  that  all  th<» 
stockholders  are  citizens  of  the^btate  which,  by  its  laws,  created  the  corporation.  I* 
is,  therefore,  necessary  that  it  be  made  to  appear  that  the  artificial  being  was  brougH 
into  existence  by  the  law  of  some  State  other  than  that  of  which  the  adverse  parli 
is  a  citizen."  STRONG,  J.,  in  Mutter  v.  Dows,  94  U.  S.  p.  445. 


FEANKLIN   BRIDGE   CO.   V.   WOOD.  65 


CHAPTER  III. 
CREATION  OF  CORPORATION. 


SECTION   I. 

By  what  Authority. 

FRANKLIN  BRIDGE  CO.  t>.  WOOD. 

1853.     14  Gr.orgia,  80. 

ASSUMPSIT  in  Heard  Superior  Court     Tried  before  Judge  HILL, 
Term,  1853. 

The  Franklin  Bridge  Company  was  incorporated  under  the  Act  of 
the  Legislature  of  1843,  to  prescribe  the  mode  of  incorporating  com- 
panies for  certain  purposes,  by  an  order  of  the  Inferior  Court  of 
Heard  County, 

The  company  sued  the  defendant,  Wood,  for  his  subscription  to 
their  stock. 

The  defendant  pleaded  that  the  company  was  not  legally  incorpo- 
rated ;  contending  that  the  act  of  the  Legislature,  referred  to,  was 
unconstitutional  and  void. 

Upon  argument,  the  court  held  that  the  act  aforesaid  was  unconstitu- 
tional, and  nonsuited  the  plaintiffs. 

To  this  decision  plaintiff  excepted. 

Mabry,  for  plaintiff  in  error. 

Featherston,  for  defendant. 

By  the  Court,  LUMPKIN,  J.,  delivering  the  opinion:  — 

Is  the  Act  of  1843  and  that  of  1845,  amendator}-  thereof,  pointing 
out  the  manner  of  creating  certain  corporations  and  defining  their 
rights,  privileges,  and  liabilities,  unconstitutional? 

B}'  the  first  section  of  the  Act  of  1843,  it  is  provided  "  That  when 
the  persons  interested  shall  desire  to  have  any  church,  camp-ground, 
manufacturing  compan}-,  trading  company,  ice  company,  fire  company, 
theatre  compan}-,  or  hotel  compan}-,  bridge  compam*,  and  ferry  com- 
pany, incorporated,  they  shall  petition  in  writing  the  Superior  or  Infe- 
rior Court  of  the  count}-  where  such  association  may  have  been  formed, 
or  may  desire  to  transact  business  for  that  purpose,  setting  forth  the 

5 


66  FRANKLIN   BRIDGE   CO.   V.   WOOD. 

object  of  their  association,  and  the  privilege  they  desire  to  exercise, 
together  with  the  name  and  style  by  which  they  desire  to  be  incorpo- 
rated ;  and  said  court  shall  pass  a  rule  or  order,  directing  said  petition 
to  be  entered  of  record  on  the  minutes  of  said  court." 

Section  2  enacts  "  That  when  such  rule  or  order  is  passed,  and  said 
petition  is  entered  of  record,  the  said  companies  or  associations  shall 
have  power  respectively,  under  and  by  the  name  designated  in  their 
petition,  to  have  and  use  a  common  seal ;  to  contract  and  be  con- 
tracted with  ;  to  sue  and  be  sued  ;  to  answer  and  be  answered  unto  in 
any  court  of  law  or  equity ;  to  appoint  such  officers  as  they  may  deem 
necessary ;  and  to  make  such  rules  and  regulations  as  they  may  think 
proper  for  their  own  government ;  not  contrarj'  to  the  laws  of  this 
State  ;  but  shall  make  no  contracts  or  purchase  or  hold  any  property  of 
any  kind,  except  such  as  ma}*  be  absolutely  necessary  to  carry  into 
effect  the  object  of  their  incorporation.  Nothing  herein  contained 
shall  be  so  construed  as  to  confer  banking  or  insurance  privileges  on 
any  company  or  association  herein  enumerated ;  and  the  individual 
members  of  such  manufacturing,  trading,  theatre,  ice,  and  hotel  com- 
panies, shall  be  bound  for  the  punctual  payment  of  all  the  contracts 
of  said  companies,  as  in  case  of  partnership." 

The  third  section  declares  that  "No  compan}*  or  association  shall 
be  incorporated  under  this  act,  for  a  longer  period  than  fourteen  years  ; 
but  the  same  may  be  renewed  whenever  necessary,  according  to  the 
provisions  of  the  first  section  of  this  act." 

The  fourth  section  confers  upon  the  Superior  and  Inferior  Courts 
respectively,  the  power  to  change  the  names  of  individuals. 

Section  fifth.  "  For  entering  an}*  of  said  petitions  and  orders,  and 
furnishing  a  certified  copy  thereof,  the  clerk  shall  be  entitled  to  a  fee 
of  five  dollars ;  except  in  cases  of  applications  by  individuals  for  the 
change  of  names,  —  in  which  case,  the  clerk  of  said  court  shall  be  en- 
titled to  the  fee  of  one  dollar.  And  that  such  certified  copy  shall  be 
evidence  of  the  matters  therein  stated  in  any  court  of  law  and  equity 
in  this  State."  Cobb's  Digest,  542,  543. 

By  the  Act  of  1845  the  provisions  of  the  Act  of  1843  are  extended 
to  all  associations  and  companies  whatever,  except  banks  and  insurance 
companies ;  and  the  individual  members  of  all  such  incorporations  are 
made  personally  liable  for  all  the  contracts  of  said  associations  or 
companies.  Ibid. 

The  argument  against  the  validity  of  the  charter  of  the  Franklin 
Bridge  Company,  created  under  these  statutes,  is  this :  — 

1.  That  in  England,  corporations  are  created  and  exist  by  prescrip- 
tion, by  Royal  Charter,  and  by  Act  of  Parliament.     With  us  they  are 
created  by  authority  of  the  Legislature,  and  not  otherwise.     That  to 
establish  a  corporation  is  to  enact  a  law  ;  and  that  no  power  but  the 
legislative  body  can  do  this. 

2.  That  legislative  power  is  vested  under  our  Constitution,  in  the 
General  Assembly,  to  consist  of  a  Senate  and  House  of  Representa- 


FRANKLIN   BRIDGE   CO.   V.   WOOD.  67 

lives,  to  be  elected  at  stated  periods  b}-  the  citizens  of  the  respective 
counties. 

3.  And  that  the  General  Assembly  is  bound  to  exercise  the  power 
of  making  laws  thus  conferred  upon  them  b}'  the  people  in  the  pri- 
mordial compact,  in  the  mode  therein  prescribed,  and  in  none  other ; 
and  that  a  law  made  in  any  other  mode  is  unconstitutional  and  void. 
That  the  Legislature  is  but  the  agent  of  their  constituents ;  and  that 
they  cannot  transfer  authority  delegated  to  them  to  any  other  body, 
corporate  or  otherwise,  —  not   even   to   the  Judiciary,  a   co-ordinate 
department  of  the  government,  unless  expressly  empowered  by  the 
Constitution  to  do  so.     That  to  do  this  would  be  to  violate  one  of  the 
fundamental  maxims  of  jurisprudence  as  well   as  of  political  science, 
namel}-,  delegata  potestas  non  potest  delegari.     That  to  do  this  would 
not  onl}'  be  to  disregard  the  constitutional  inhibition  which  is  binding 
upon  the  representative,  but  by  shifting  responsibility  introduce  inno- 
vations upon  our  system,  which  would  result  in  the  overthrow   and 
ultimate  destruction  of  our  political  fabric. 

The  constitutional  inquiry  thus  presented  is  an  exceedingly  grave 
one.  It  reaches  far  beyond  the  case  made  in  the  bill  of  exceptions, 
and  extends  to  the  whole  range  of  topics  which  fall  under  legislative 
cognizance.  In  the  view  we  take  however  of  the  statutes  before  us, 
no  such  proposition  as  that  which  has  been  discussed  is  presented  for 
our  adjudication.  And  we  rejoice  that  it  is  so,  not  only  on  account  of 
the  delicacy  of  the  task,  in  pronouncing  an  act  of  Legislature  uncon- 
stitutional and  void,  — one  which  is  never  justifiable  unless  the  case  is 
clear  and  free  from  doubt ;  and  even  then  one  might  almost  be  for- 
given for  shrinking  from  the  performance  of  a  duty  which  would  be 
productive  of  such  incalculable  mischief  and  confusion.  Bridges  have 
been  built  at  a  heavy  expense ;  manufacturing  and  innumerable  other 
associations  have  been  formed  in  Georgia,  and  are  in  full  operation, 
under  charters  incorporated  under  this  law.  And  in  view  of  the  con- 
sequences any  court  might  hesitate,  unless  the  repugnance  between 
the  statute  and  the  Constitution  was  so  palpable  as  to  admit  of  no 
doubt,  and  produce  a  settled  conviction  of  their  incompatibilit}'  with 
each  other. 

4.  It  was  formerly  asserted  that  in  England  the  act  of  incorpora- 
tion must  be  the  immediate  act  of  the  king  himself,  and  that  he  could  r/ 
not  grant  a  license  to  another  to  create  a  corporation.     10  Reports, 

27.  But  Messrs.  Angell  and  Ames,  in  their  Treatise  on  Corporations, 
state  that  the  law  has  since  been  settled  to  the  contrary  ;  and  that  the 
king  ma}T  not  only  grant  a  license  to  a  subject  to  erect  a  particular 
corporation,  but  give  a  general  power  by  charter  to  erect  corporations 
indefinitely,  on  the  principle  that  quifacit per  alium  facit  per  se;  that 
the  persons  to  whom  the  power  is  delegated  of  esjablisbing  corpora- 
tions, are  only  an  instrumental  the  hands  of  the  government  1  Kyd, 
~50l  1  Black.  Com.  ;  Ang.  &~Am.  63. 

Before  the  revolution,  charters  of  incorporation  were  granted  by  the 


68  FRANKLIN   BRIDGE   CO.   V.   WOOD. 

proprietaries  of  Pennsylvania  under  a  derivative  authority  from  the 
Crown  ;  and  those  charters  have  since  been  recognized  as  valid.  3  ^Yil- 
son's  Lectures,  409.  A  similar  power  has  been  delegated  by  the 
Legislature  of  Pennsylvania  with  regard  to  churches.  7  S.  &  R.  517. 
The  acts  of  the  instrument  in  these  cases  become  the  acts  of  the 
mover,  under  the  familiar  maxim  above  mentioned.  See  also 
1  Missouri  K.  5. 

5.  Our  opinion  is  that  no  legislative,  power  is  delegated  to  the  courts 
by  the  acts  under  consideration.  Thpr^  is  simply  a  ministerial  act  to 
_bc  penfoymstU-r^  no  discretion  is  givflp  to  the  courts.  The  duty  of 
passing  the  rule  or  order  directing  the  petition  of  the  corporators  to  be 
entered  of  record  on  the  minutes  of  the  court,  setting  forth  to  the 
public  the  object  of  the  association  and  the  privilege  they  desire  to 
exercise,  together  with  the  name  and  style  by  which  they  are  to  be 
called  and  known,  is  made  obligatory  upon  the  courts  ;  and  should 
they  refuse  to  discharge  it,  a  mandamus  would  lie  to  coerce  them.  It 
is  true  the  Legislature  has  seen  fit  to  use  the  courts  for  the  purpose  of 
giving  legal  form  to  these  companies.  But  it  might  have  been  done  in 
any  other  way.  Under  the  Free  Banking  Law  of  1838,  instead  of 
petitioning  the  court,  and  having  the  order  passed  and  entered  upon  its 
minutes,  the  certificate  specifying  the  name  of  the  association,  its 
place  of  doing  business,  the  amount  of  its  capital  stock,  the  names 
and  residence  of  the  shareholders,  and  the  time  for  which  the  corn- 
pan  v  was  organized,  is  required  merely  to  be  proven  and  acknowl- 
edged, and  recorded  in  the  office  of  the  clerk  of  the  •Superior  Court, 
where  any  office  of  the  association  is  established,  and  a  copy  filed  with 
the  Comptroller  General.  Cobb's  Digest,  107,  108. 

And  so  under  the  Act  of  1847,  authorizing  the  citizens  of  this  State, 
and  such  others  as  they  may  associate  with  them,  to  prosecute  the 
business  of  manufacturing  with  corporate  powers  and  privileges.  The 
persons  who  propose  to  embark  in  that  branch  of  business  are  required 
to  draw  up  a  declaration  specifying  the  objects  of  their  association  and 
the  particular  branch  of  business  they  intend  carrying  on,  together 
with  the  name  bj-  which  they  will  be  known  as  a  corporation,  and  the 
amount  of  capital  to  be  employed  by  them  ;  which  declaration  is  re- 
quired to  be  first  recorded  in  the  clerk's  office  of  the  Superior  Court  of 
the  county  where  such  corporation  is  located,  and  published  once  a 
week  for  two  months  in  the  two  nearest  Gazettes  ;  which  being  done, 
it  is  declared  that  said  association  shall  become  a  body  corporate  and 
politic,  and  known  as  such,  without  being  specially  pleaded,  in  all 
courts  of  law  and  equity  in  this  State,  to  be  governed  by  the  provi- 
sions and  be  subject  to  the  liabilities  therein  specified.  Cobb's  Digest, 
439,  440. 

In  these  two  instances,  and  others  which  might  be  cited,  the  Legis- 
lature have  dispensed  with  the  action  of  the  courts,  or  of  any  other 
agency,  to  carry  out  their  enactments  with  regard  to  these  various 
MMctatioiM  which  have  become  the  usual  and  favorite  mode  of  con- 
ducting the  industrial  pursuits  of  the  civilized  world  in  modern  times. 


STATE   V.   DAWSOX.  69 

All  these  Statutes  were  complete  as  laws  when  they  came  from  the 
hands  of  the  Legislature,  and  did  not  depend  for  their  force  and  effi- 
cacy upon  the  action  or  will  of  any  other  power.  It  is  true  that  they 
could  only  take  effect  upon  the  happening  of  some  event,  such  as  the 
filing  the  petition  or  declaration,  and  giving  publicity  to  the  purpose  of 
the  association  in  the  mode  prescribed  by  the  act.  But  if  this  were 
a  good  reason  for  regarding  these  statutes  as  invalid,  then  how  few 
corporations  could  abide  the  test!  For  it  requires  the  acceptance  of 
the  charter  to  create  a  corporate  body  ;  for  the  government  cannot 
compel  persons  to  become  an  incorporated  bodj'  without  their  consent. 
And  this  consent,  either  express  or  implied,  is  generally  subsequent 
in  point  of  time  to  the  creation  of  the  charter.  And  yet,  no  charter 
that  we  arc  aware  of  has  been  adjudged  invalid,  because  the  law  cre- 
ating it  and  previously  defining  its  powers,  rights,  capacities,  and  lia- 
bilities, did  not  take  effect  until  the  acceptance  of  the  corporate  body, 
or  at  least  a  majority  of  them,  was  signified. 

The  result  therefore  of  our  deliberation  upon  this  case  is,  that  the 
Acts  of  1843  and  1845,  vesting  in  all  associations,  except  for  banking 
and  insurance,  the  power  of  self-incorporation,  do  not  impugn  the 
Constitution,  and  that  the  charter  of  the  Franklin  Bridge  Company 
and  all  others  created  under  them,  and  in  conformity  to  their  provi- 
sions, are  legal  and  valid.  With  the  policy  of  these  Statutes  we  have 
nothing  to  do.  The  province  of  this  and  all  other  courts  is  jus  dicere, 
not  jus  dare.  Judgment  reversed. 


SECTION  II. 

Acceptance  of  Charter. 

STATE  v.  DAWSON  ET  ALS. 

1861.     16  Indiana,  40. 

APPEAL  from  the  Clark  Circuit  Court. 

PERKINS,  J.  Information  against  the  defendants,  charging  that  they 
are  pretending  to  be  a  corporation,  and  to  act  as  such,  when  they  are 
not  a  corporation.  It  charges  that  in  January,  1849,  the  Legislature 
of  the  State  of  Indiana  enacted  a  special  charter  of  incorporation, 
(which  is  set  out  at  length,)  for  a  railroad  from  fort  Wayne,  Indiana, 
to  Jeffersonville,  to  be  failed  the  Fort  Wayne  and  Southern  Railroad  ; 
that  the  persons  named  in  the  charter  as  directors  did  not  accept  said 
charter  tili  June  2,  1852,  when  they  did  meet  and  accept  the  same,  and 
organize  under  it.  It  is  alleged  that  the  defendants  are  assuming  to 
act  under  said  charter,  never  having  organized  under  any  other.  The 


70  STATE   V.  DAWSON. 

court  below  sustained  a  demurrer  to  the  information  ;  thus  holding  the 
defendants  to  be  a  legal  corporation. 

The  present  Constitution  of  Indiana  took  effect  on  November  1, 
1851.  It  contains  these  provisions  :  — 

"  All  laws  now  in  force  and  not  inconsistent  with  this  Constitution, 
shall  remain,  io  force,  until  they  shah1  expire  or  be  repealed."  Sched. 
(1  sub.  sec.)  of  Const 

»*  Corporations,  other  than  banking,  shall  not  be  created  by  special 
act,  but  may  be  formed  under  general  laws."  Art  11,  §  13. 

"  All  acts  of  incorporation  for  municipal  purposes  shall  continue  in 
force  under  this  Constitution,  until  such  time  as  the  General  Assembly 
shall,  in  its  discretion,  modify  or  repeal  the  same."  Sched.  supra,  sub. 
sec.  4. 

The  charter  for  the  Fort  Wayne  and  Southern  Railroad  was  not  a 
charter  for  municipal  purposes,  and,  hence,  was  not  specially  continued 
in  existence.  Art.  11,  §  13,  above  quoted,  prohibits  the  creation  of  a 
corporation  by  special  act  or  charter,  that  is,  as  we  construe  the  pro- 
hibition, through,  or  by  virtue  of,  such  special  act  or  charter,  after 
November  1,  1851.  The  policy  that  induced  the  prohibition,  as  well  as 
its  literal  import,  demands  this  construction.  It  is  necessanr  for  us  to 
ascertain,  then,  when  the  defendants,  if  ever,  were  created  a  corpora- 
tion. The  simple  enactment  of  the  charter  for  the  corporation,  by  the 
Legislature,  did  not  create  the  corporation.  It  required  one  act  on  the 
part  of  the  persons  named  in  the  charter  to  do  that,  viz :  acceptance 
of  the  charter  enacted. 

Says  Grant,  in  his  work  on  corporations,  vide  p.  13  :  "  Nor  can  a 
charter  be  forced  on  any  body  of  persons  who  do  not  choose  to  accept 
it"  And  again,  at  page  18,  he  says,  "  The  fundamental  rule  is  this: 
no  charter  of  incorporation  is  of  an}'  effect  until  it  is  accepted  by  a 
majority  of  the  grantees,  or  persons  who  are  to  be  the  corporators  un- 
der it.  JBfifff/e's  case,  2  Brownl.  &  G.  100 ;  S.  C.  1  Roll.  Rep.  224  ; 
Dr.  Askew's  case,  4  Burr.  2200 ;  Butter  v.  Chapman,  8  M.  &  W.  25 ; 
per  Wilmot,  J.,  Rex  v.  Vice- Chancellor  of  Cambridge,  3  Burr,  1661. 
This  is  analogous  to  the  general  rule  that  a  man  cannot  be  obliged  to 
accept  the  grant  or  devise  of  an  estate.  Townson  v.  Tickell,  3  B.  & 
Aid.  31."  See,  also,  Ang.  &  Am.  §  83,  where  it  is  said,  if  a  charter 
W  granted  to  those  who  did  not  apply  for  it,  the  grant  is  said  to  be  in 
fieri  till  acceptance.  We  need  not  inquire  whether  this  rule  extends  to 
municipal  corporations  in  this  countiy.  As  to  what  may  constitute  an 
acceptance  we  are  not  here  called  on  to  decide,  as  the  information  ex- 
pressly shows  that  there  was  none  in  this  case  till  June,  1852,  which 
fact  is  admitted  by  the  demurrer. 

The  grant  of  the  charter  in  question,  then,  to  those  who  had  not  ap- 
plied for  it,  was  but  an  offer,  on  the  part  of  the  State  ;  a  consent  that 
the  persons  named  in  the  charter  might  become  a  corporation,  might  be 
created  such  an  artificial  being,  by  accepting  the  charter  offered.  But 
jan  ojrcr,till  accepted,  may  be  withdrawn.  In  this  case,  the  offer  made 


REX   V.   WESTWOOD.  71 

by  the  State,  in  1849,  was  withdrawn  by  the  State,  November  1,  1851,  •/ 
by  then  declaring  that  no  corporation,  after  that  date,  should  be  cre- 
ated except  pursuant  to  regulations  which  she,  in  future,  through  her 
Legislature  would  prescribe. 

This  pretended  corporation,  then,  was  not  created  before  November 
1,  1851  ;  and  it  could  be  created  afterward  only  by  the  concurrent  con- 
sent of  the  State  and  the  corporators.  But,  at  that  date,  the  Constitu- 
tion prohibited  both  the  State  and  corporators  from  giving  consent  to 
such  a  corporation,  to  wit :  one  coming  into  existence  through  a  special 
charter ;  and  hence  necessarily  prohibited  the  creation  thereof.  This 
decision  accords  with  that  of  the  Supreme  Court  of  the  United  States 
in  Aspinwatt  v.  Daviess  County,  22  How. ,  p.  364 ;  where  it  was  held 
that  the  new  Constitution  prohibited  a  subscription  of  stock  to  the  Ohio 
and  Mississippi  Railroad  Company,  authorized  by  the  charter  of  the 
corporation,  granted  under  the  former  Constitution,  and  actually  voted 
by  the  people  of  the  county,  under  that  Constitution. 

Whether,  as  a  matter  of  fact,  the  charter  in  this  case  was  accepted 
under  the  old  Constitution,  must  be  determined  on  a  trial  of  the  cause 
below. 

Had  the  provision  in  our  Constitution,  like  that  on  this  subject  in  the 
Constitution  of  Ohio,  ordained  that  the  Legislature  should  "  pass  no 
special  act  conferring  corporate  powers,"  the  restraint  would  clearly* 
have  been  imposed  alone  upon  future  legislative  action ;  but,  in  our    \  \ 
Constitution,  the  restraint  is  plainly  imposed  upon  the  creation,  the    * 
organization,  of  the  corporation  itself.     See   The  State  v.  Roosa,  H 
O.  St.  R.  16. 

Per  Curiam.  The  judgment  is  reversed,  with  costs.  Cause  re- 
manded for  further  proceedings  in  accordance  with  this  opinion. 

C.  B.  Smith,  J.  W.  Gordon,  and  Watt  J.  Smith,  for  the  appellant. 

R.  Crawford,  for  the  appellees.1 


REX  v.  WESTWOOD. 

1825.     4  BarnewallSf  Cresswell,  781. 
1830.     7  Btnyham,  I.2 

Quo  Warranto  for  usurping  the  office  of  burgess  of  the  borough  of 
Chopping  Wycombe.  It  was  admitted  on  the  pleadings  that  the  cor- 
poration of  Chopping  Wycombe  has  existed  from  time  immemorial. 
Plea,  alleging,  inter  alia,  defendant's  election  by  a  select  body  of  the 

1  Citations  of  counsel  for  appellees  are  omitted.  —  ED. 

2  Statement  abridged.    Arguments  omitted.    Only  so  much  of  the  case  is  given  as 
relates  to  one  point.  —  ED. 


72  BEX   V.   WESTWOOD. 

burgesses,  according  to  the  custom  from  time  immemorial.  Replica- 
tion, setting  out  a  charter  granted  by  the  Crown  in  15  Charles  II., 
whereby  it  was  granted  that  the  entire  body  of  burgesses  should  and 
might  be  able  to  elect  new  burgesses.  Rejoinder,  that  said  charter 
was  not  accepted  by  the  then  burgesses  as  to  that  part  thereof  which 
ordained  the  mode  of  electing  new  burgesses.  Demurrer. 

Scarlett,  in  support  of  demurrer. 

Tindal,  contra. 

LITTLEDALE,  J.  .  .  .  But  then  the  rejoinder  says  the  charter  was 
not  accepted  in  that  part  which  relates  to  the  election  of  the  burgesses. 
1  think  that  rejoinder  is  bad,  because  I  think  a  corporation  cannot 
accept  a  charter  in  part  only.  When  a  charter  is  given  by  the  crown, 
it  is  considered  as  forming  a  whole  scheme  formed  upon  deliberation 
for  the  good  government  of  the  borough.  Some  parts  of  this  may  not 
be  what  the  corporation  may  like  in  themselves ;  but  the  crown,  on  the 
other  hand,  may  have  granted  them  other  valuable  privileges  as  a  sort 
of  compensation  for  the  inconvenience  and  trouble  they  might  suffer 
from  other  parts.  But  the  corporation  would  never  have  had  the  valu- 
able parts  unless  they  had  had  some  of  the  troublesome  ones  also.  In 
The  Kiny  v.  The  Vice  Chancellor  of  Cambridge,  3  Burr.  1647,  it  was 
considered  by  Lord  Mansfield,  that  a  corporation  might  accept  a  char- 
ter in  part.  In  page  1656,  he  says,  "but  there  is  a  vast  deal  of 
difference  between  a  new  charter  granted  to  a  new  corporation  (who 
must  take  it  as  it  is  granted)  and  a  new  charter  given  to  a  corporation 
already  in  being,  and  acting  either  under  a  former  charter,  or  under 
prescriptive  usage.  The  latter,  a  corporation  already  existing,  are  not 
obliged  to  accept  the  new  charter  in  toto.  and  to  receive  either  all  or 
none  of  it ;  the}-  may  act  partly  under  it,  and  partly  under  their  old 
charter  or  prescription."  And  Mr.  Justice  Wilmot,  3  Burr.  1661, 
says,  *'  It  is  the  concurrence  and  acceptance  of  the  university  that  give 
the  force  to  the  charter  of  the  crown,  and  they  may  take  and  accept 
the  Ixxly  of  statutes  or  code  of  laws  separately  and  distinctly ;  they 
are  not  bound  to  take  all,  or  leave  all."  But  though  such  is  the  law 
laid  down  it  was  not  necessary  to  do  so,  because  the  office  of  High 
Steward  was  an  ancient  office  existing  long  before  the  statutes  of 
Queen  Elizabeth,  and  from  the  language  of  those  statutes,  it  is  plain, 
the  crown  did  not  mean  to  interfere  with  the  mode  of  electing  the 
ancient  officers  in  the  university,  except  such  as  were  particularly  men- 
tioned ;  and  a  question  latch*  arose  in  this  court  upon  the  construction 
of  one  of  those  statutes,  whether  a  particular  professorship  fell  within 
the  meaning  of  it,  viz.,  that  all  officers  where  the  mode  of  election  was 
not  pointed  out,  should  be  elected  as  the  Vice-Chancellor.  That  was 
not  a  general  charter  given  to  the  university  to  form  the  whole  consti- 
tution of  it,  but  a  selection  of  statutes  for  the  election  of  particular 
officers,  and  it  is  by  the  aggregate  of  different  statutes  given  at  differ- 
ent times  by  the  crown,  that  the  university  is  governed.  In  The  Kiny 
v.  Amery,  1  T.  R.  589,  Buller,  J.,  says,  '•  The  averment  proceeds  on  a 


• 

BEX   V.   WESTWOOD.  73 

mistake  by  supposing  that  a  charter  may  be  accepted  in  part  and 
rejected  as  to  the  rest.  The  only  instance  in  which  I  have  ever  heard 
it  contended  that  a  charter  could  be  accepted  in  part  only,  is  where  the 
king  has  granted  two  distinct  things,  both  for  the  benefit  of  the  grant- 
ees ;  there  I  know  that  some  have  thought  that  the  grantees  may  take 
one,  and  reject  the  other.  However  that  may  be,  it  cannot  extend  to 
this  case.  This  corporation  must  either  have  accepted  in  toto,  or  not 
at  all.  If  ihey  could  have  accepted  a  part  only  of  the  charter,  they 
would  have  been  a  corporation  created  by  themselves,  and  not  by  the 
king.  If  a  charter  directed  that  the  corporation  should  consist  of  a 
mayor,  aldermen,  and  twenty-four  common  councilmen,  they  could  not 
accept  the  charter  for  the  mayor  and  aldermen  only,  omitting  the  com- 
mon councilmen."  There  not  being  any  case  where  I  consider  the 
point  as  having  distinctly  come  in  judgment,  there  are  only  the  oppo- 
site dicta  of  judges  to  guide  us,  and  then  I  must  give  my  judgment  in 
that  way  which  appears  most  consonant  to  the  general  principle  of  law 
as  applicable  to  grants  of  the  crown,  that  the  grantees  must  take  the 
whole  of  one  entire  thing  which  the  crown  grants,  or  none  at  all. 
Therefore,  the  rejoinder  is  no  answer  to  the  replication  to  the  first  and 
second  pleas,  and  judgment  must  be  for  the  crown  on  that  part  of  the 
record. 

[Omitting  other  opinions.] 

Judgment  for  the  Crown  <»i  the  first  two  pleas.     For  the  de- 
fendant upon  the  third  plea. 

[A  writ  of  error  was  brought  to  the  House  of  Lords,  where  it  was 
argued  that  the  judgment  ought  to  be  reversed  upon  another  point. 

LORD  TENTERDEN  delivered  an  opinion,  from  which  the  following  is 
an  extract.] 

Two  questions  of  law,  therefore,  have  arisen  upon  this  record ;  the 
first,  whether  it  is  competent  to  an  existing  corporation,  to  whom  a 
charter  of  the  crown  is  offered,  to  accept  that  charter  in  part  and  reject 
it  in  part ;  or  if  it  accept  it  in  part,  whether  that  must  not  be  taken  to 
be  an  acceptance  of  the  whole?  Upon  that  point  there  never  has  been 
any  difference  of  opinion  among  the  learned  Judges.  There  are, 
indeed,  to  be  found  some  expressions  of  Judges  in  former  times  im- 
porting that  a  corporation  might  accept  part  of  a  charter  and  reject 
the  remainder;  but  of  late  times  all  Judges  have  been  of  opinion  that 
it  is  not  open  to  a  corporation  ;  otherwise  a  corporation  might  reject 
the  obligation  which  was  imposed,  and  accept  the  benefit  which  was 
conferred  upon  them  ;  and  accordingly  there  was  judgment  in  the  court 
below  for  the  crown  upon  that  point,  namely,  that  the  allegation  that 
the  charter  was  accepted  in  part  was  a  bad  allegation. 

Judgment  affirmed. 


74  PEOPLE  V.   MOXTECITO   WATER  CO. 

SECTION  III. 

Conditions  precedent  to  Incorporation  De  Jure. 
PEOPLE  v.   MONTECITO  WATER  CO. 

1893.     97  California,  276. 

[IN  Department  Two.1]  Appeal  from  a  judgment  of  the  Superior 
Court  of  Los  Angeles  County. 

The  facts  are  stated  in  the  opinion. 

John  J.  Jioyce,  Richards  &  Carrier,  and  George  H.  Gould,  for 
appellant. 

W.  C.  Stratton,  for  respondents. 

TEMPLE,  C.  Plaintiff  appeals  from  a  judgment  entered  upon  demur- 
rer to  complaint.  The  demurrer  was  general,  and  on  the  ground  of 
insufficiency  of  the  facts.  It  is  a  proceeding  taken  by  the  attorney 
general  of  the  state,  in  the  nature  of  a  quo  warranto,  to  deprive  the 
defendant  corporation  of  its  corporate  charter,  and  procure  its  dissolu- 
tion on  two  grounds  —  First,  for  want  of  a  substantial  compliance  with 
the  statutory  requirements  in  its  formation  ;  and  second,  for  abandon- 
ment and  misuse  of  its  corporate  franchise  and  powers,  and  for  alleged 
violations  of  law. 

In  answer  to  the  first  point  the  respondent  raises  the  preliminary 
objection  that,  by  making  the  corporation  a  defendant,  its  corporate 
character  is  admitted,  and  cannot  be  questioned  in  this  proceeding.  As 
authority  for  this  proposition  the  case  of  the  People  u.  Stanford,  77 
Cal.  3GO,  18  Pac.  Rep.  85,  and  19  Pac.  Rep.  693,  is  chiefly  relied  upon. 
In  that  case  it  was  alleged  in  the  complaint  that  the  assumed  corpora- 
tion had  never  been  a  corporation.  If  it  were  not  a  corporation  of  any 
character,  it  had  no  legal  existence,  and  could  not  be  sued.  By  mak- 
ing it  a  party,  plaintiff  conceded  that  it  was  a  person  that  could  be  sued. 
It  was  said  that  the  corporation  could  not  be  treated  as  a  person  which 
could  be  sued  simply  to  obtain  a  judgment ;  that  it  was  not  and  never 
had  been  such  a  person.  There  is  no  such  inconsistency  here.  It  is 
averred  that  the  corporate  defendant  is  a  corporation  de  facto,  but  it  is 
claimed  that  it  did  not  become  a  corporation  de  jure,  because  the  per- 
sons who  attempted  the  incorporation  did  not  comply  with  the  condi- 
tions which  the  statute  makes  conditions  precedent  to  its  rightful 
incorporation.  Under  such  circumstances,  although  the  association 
is  a  legal  entfty,  which  may  be  sued,  its  right  to  corporate  exist- 
ence may  be  questioned  by  the  state  in  a  proceeding  of  this  character. 
Section  358,  Civil  Code.  This  court  said  in  People  v.  La  Rue,  67 

1  As  to  the  Department  of  the  Supreme  Court,  and  as  to  Supreme  Court  Commis- 
•iouers,  see  Preface  to  97  California,  pp.  v-vii 


PEOPLE   V.   MONTECITO   WATER   CO.  75 

Cal.  530,  8  Pac.  Rep.  84,  and  repeated  the  language  in  First  Bap- 
tist Church  v.  Branham.  90  Cal.  22,  27  Pac.  Rep.  60:  "  A  norpo- 
ration  de  fa^to_ma^_Jegajl^_d^_j,nd_^erfprm  every  act  and  thing 
^whTcli  the  same  entity  could  do  or  perform  were  it  a  de  jure  corpora- 
tion:— 3jTtb  all  the  worlcITexcepFthe  paramount  authority  under  which 
it  acts,  and  from  which  it  receives  its  charter,  it  occupies  the  same  posi- 
tion as  though  in  all  respects  valjdj  and  even  as  against  the  state, 
jexcept  in  direct  proceedings  to  arrest_its  usurpation^  of  power,  it  is 
submitted  its  acts  are  to  be  treated  as  efficacious."  Under  such  cir- 
cumstances it  seerniTclear  that  the  corporation!^  not  only  a  proper,  but 
a  necessary  party.  People  u.  Flint,  64  Cal.  49,  28  Pac.  Rep.  495  ; 
People  v.  Gunn,  85  Cal.  244,  24  Pac.  Rep.  718. 

It  is  contended  that  the  corporation  is  not  rightfully  such  because, 
while  five  incorporators  signed  the  articles  of  incorporation,  only  four  ac- 
knowledged the  same.  Section  292  of  the  Civil  Code  reads  as  follows : 
"  The  articles  of  incorporation  must  be  subscribed  by  five  or  more  per- 
sons, a  majorit}7  of  whom  must  be  residents  of  this  state,  and  acknowl- 
edged by  each  before  some  officer  authorized  to  take  and  certify 
acknowledgments  of  conveyances  of  real  property."  It  was  said  in 
People  v.  Selfridge,  52  Cal.  331  :  "  The  right  to  be  a  corporation  is 
in  itself  a  franchise ;  and,  to  acquire  a  franchise  under  a  general  law, 
the  prescribed  statutory  conditions  must  be  complied  with."  Still,  a 
substantial,  rather  than  a  literal,  compliance  will  suffice.  People  v. 
Stockton  &  V.  R.  Co.,  45  Cal.  313.  Was  there  substantial  compli- 
ance in  this  case?  Because  a  substantial  compliance  will  do,  it  does 
not  follow  that  any  positive  statutory  requirement  can  be  omitted,  on 
the  ground  that  it  is  unimportant.  They  are  conditions  precedent  to 
acquiring  a  statutory  right,  and  none  can  be  dispensed  with  by  the 
court.  What  is  a  substantial,  rather  than  a  literal,  compliance,  ma}*  be 
illustrated  from  the  cases.  In  Ex  parte  Spring  Valley  Waterworks, 
17  Cal.  132,  the  certificate  stated  the  place  of  business,  but  did  not 
describe  it  as  the  "  principal  place  of  business,"  as  required.  The 
court  said  :  "  The  statement  that  San  Francisco  was  the  place  of  busi- 
ness would  seem  to  imply  that  it  was  not  onl}-  the  principal,  but  the 
only,  place  of  business."  In  People  v.  Stockton  &  V.  R.  Co.,  45  Cal. 
306,  the  affidavit  required  in  such  cases  to  be  attached  to  the  certificate 
stated  that  10  per  cent  of  the  amount  subscribed  had  been  actually 
paid  in,  omitting  the  words  "  in  good  faith,"  which  the  statute  required. 
In  the  certificate  it  was  stated  that  more  than  10  per  cent  had  been 
actualh"  in  good  faith  paid  in.  It  was  held  sufficient,  and  it  would 
seem  that,  if  it  was  actually  paid  in  cash,  it  must  have  been  paid  in 
good  faith  ;  and  it  was  further  held  that  payment  by  checks  drawn 
against  sufficient  funds  in  a  bank,  which  was  ready  to  accept  and  pay 
the  checks,  was  substantial!}-  payment  in  cash.  In  People  v.  Cheese- 
man,  7  Colo.  376,  the  acknowledgment  taken  by  the  notary  omitted  to 
state  that  the  persons  whose  acknowledgments  were  taken  were  person- 
ally known  to  the  notary.  The  certificate  did  state  that  the  persons 


76  PEOPLE    V.   MONTECITO   WATER  CO. 

who  signed  appeared  before  him  and  acknowledged  it.  The  statute  did 
not  prescribe  what  the  acknowledgment  should  contain,  and  it  was  held 
a  substantial  compliance  with  the  requirement,  although  the  form  pre- 
scribed for  acknowledgments  to  deeds  was  not  followed.  It  was  ac- 
knowledged. In  all  these  cases  it  will  be  seen  that  the  thing  required 
was  done,  but  not  literally  as  directed ;  but  there  was  no  omission  of 
any  requirement.  No  case  has  been  cited  where  the  entire  omission  of 
a  thing  prescribed  has  been  excused,  unless  it  be  the  case  of  Larrabee 
r.  Baldwin,  35  Cal.  155.  That  was  not  an  action  instituted  by  the 
state  to  disincorporate  on  the  ground  of  noncompliance.  As  we  have 
seen,  unless  the  state  complains,  a  cle  facto  corporation  must  be  consid- 
'  ered,  under  our  Code,  as  possessing  a  corporate  character;  and  the 
stockholders,  when  sued  upon  their  individual  liability,  should  not  be 
allowed  to  make  the  point  that  they  did  not  comply  with  the  law.  In 
that  case  the  certificate  was  signed  by  five  directors,  but  two  failed  to 
acknowledge  it.  Other  questions  are  discussed  at  great  length  in  the 
opinion,  but  in  regard  to  the  point  made  on  the  certificate  it  was  simply 
remarked:  "  It  is  not  clear  that  any  fatal  defect  exists  in  the  certifi- 
cate of  incorporation.  If  so,  it  is  cured  by  the  act  of  April  1,  1864." 
Plainly  it  was  unnecessary  to  consider  the  question.  The  curative  act  re- 
ferred to  declares  :  "  All  associations  or  companies  heretofore  organized, 
and  acting  in  the  form  and  manner  of  corporations,  and  that  have  filed 
certificates  for  the  purpose  of  being  incorporated,  but  whose  certificates 
are  in  some  manner  defective,  or  have  been  improperly  acknowledged 
before  a  person  not  authorized  by  law  to  take  such  acknowledgments, 
are  hereby  declared  to  be,  and  to  have  been,  corporations  from  the 
date  of  the  filing  of  such  certificates,  in  the  same  manner  and  to  the 
same  effect  and  intent  as  if  such  certificates  were  without  fault,  and 
properly  acknowledged  before  the  proper  officer ;  and  all  such  certifi- 
cates are  hereby  validated,  and  declared  to  be  legal,  and  shall  have  the 
same  force  and  effect  as  if  such  certificates  were  free  from  all  fault  or 
defect,  and  were  properly  acknowledged,"  etc.  St.  1863-64,  p.  303. 
Section  292  of  the  Civil  Code  requires  the  articles  to  be  subscribed  and 
acknowledged  by  each.  As  this  is  an  express  condition  precedent  to  a 
valid  incorporation,  it  is  not  of  consequence  to  the  court  whether  it 
be  a  wise  or  necessar}-  requirement  or  not.  Still,  it  is  easy  to  see  a 
reason  for  it.  The  certificate  secures  the  state,  and  all  concerned, 
against  the  possibility  of  any  fictitious  names  being  subscribed  to  the 
articles,  and  furnishes  proof  of  the  genuineness  of  the  signatures.  If 
the  acknowledgment  can  be  dispensed  with  as  to  one,  why  not  as  to  two 
or  three,  or  all?  Ordinarily,  no  doubt,  the  state  would  not  be  expected 
to  institute  a  proceeding  of  this  character  for  such  a  defect  alone,  and 
we  must  presume  that  the  attorney  general  would  not  have  instituted 
this  inquiry  if  he  were  not  convinced  that  there  were  reasons  sufficient 
to  justify  it  Other  reasons  are  alleged  ;  but,  as  the  statute  authorfzes 
a  proceeding  to  forfeit  the  charter  where  the  statute  has  not  been  com- 
plied »vith,  although  the  corporation  is  acting  in  good  faith,  and  is  a 


NEWCOMB   V.   KEED.  77 

de  facto  corporation,  the  complaint  must  be  held  to  state  a  cause  of 
action,  and  the  demurrer  should  be  overruled.  The  judgment  should 
be  reversed,  and  the  cause  remanded,  with  directions  to  overrule  the 
demurrer. 

HAYNES,  C.,  and  BELCHER,  C.,  concurred. 

For  the  reasons  given  in  the  foregoing  opinion,  the  judgment  is  re- 
versed, and  the  cause  remanded,  with  directions  to  overrule  the 
demurrer. 

DE  HAVEN,  J.,  MCFARLAND,  J.,  FITZGERALD,  J. 


NEWCOMB  v.  REED. 

1866.     \2AUen,  362. 

CONTRACT,  in  which  the  plaintiff  sought  to  charge  the  officers  of  the 
Boston  Mechanical  Baken*  Company  with  a  debt  contracted  in  the 
name  of  the  corporation,  in  consequence  of  their  neglect  to  file  cer- 
tificates and  statements  of  the  condition  of  the  corporation.  At  the 
trial  in  the  superior  court,  before  Ames,  J.,  without  a  jurj-,  the  judge 
found  for  the  defendants  upon  facts  which  are  stated  in  the  opinion ; 
and  the  plaintiff  alleged  exceptions. 

C.  B.  Goodrich  &  E.  Avery,  for  the  plaintiff. 

E.  Merwin,  for  the  defendants. 

HOAR,  J.  The  defence  to  this  action  rests  wholly  upon  the  assump- 
tion that  the  corporation,  whose  officers  the  plaintiff  seeks  to  charge 
with  a  statute  liability  for  its  debts,  never  had  a  legal  existence.  The 
only  defect  suggested  in  the  organization  of  the  corporation  is,  that  the 
call  for  the  first  meeting  was  signed  by  only  one  of  the  persons  named 
in  the  act  of  incorporation,  and  not  b}'  a  majority  of  them,  as  required 
by  St.  1855,  c.  140. 

The  case  of  Utley  v.  Union  Tool  Company,  11  Gray,  139.  is  the 
authority  on  which  the  defendants  chiefly  rely.  That  case  decided 
that  in  order  to  charge  as  stockholders  of  a  manufacturing  corporation 
persons  who  had  been  summoned  in  an  action  against  it  under  St. 
1851,  c.  315,  the  plaintiff  must  prove  the  legal  existence  of  the  cor- 
poration. The  alleged  corporation  had  no  charter  or  act  of  incorpora- 
tion from  the  legislature,  but  was  an  association  which  had  undertaken 
to  assume  corporate  powers  under  a  general  act  for  the  formation  of 
joint  stock  companies,  St.  1851,  c.  133.  That  statute  authorized  three 
or  more  persons  who  had  entered  into  "  articles  of  agreement  in  writ- 
ing" for  the  transaction  of  certain  kinds  of  business,  to  organize  in  a 
manner  prescribed,  and  thereby  to  become  a  corporation  ;  and  the 
court  were  of  opinion  that  written  articles  of  agreement  were  essential 
to  constitute  a  corporation,  and  that  these  articles  must  fix  the  amount 
of  the  capital  stock,  and  set  forth  distinctly  the  purpose  for  which  and 


78  NKWCOMB   V.   REED. 

the  place  in  which  the  corporation  was  established.  The  court  say, 
"There  is  an  obvious  reason  for  making  such  organization  by  written 
articles  of  agreement  a  condition  precedent  to  the  exercise  of  corpo- 
rate rights.  It  is  the  basis  on  which  all  subsequent  proceedings  are  to 
rest,  and  is  designed  to  take  the  place  of  a  charter  or  act  of  incorpora- 
tion, by  which  corporate  rights  and  privileges  are  usually  granted." 
And  they  add  that  "it  is  not  a  case  of  a  defective  organization  under 
a  charter  or  act  of  incorporation,  nor  of  erroneous  proceedings  after  the 
necessary  steps  were  taken  to  the  assumption  of  corporate  powers, 
but  there  is  an  absolute  want  of  proof  that  any  corporation  was  ever 
called  into  being,  which  had  the  power  of  contracting  debts  or  of  ren- 
dering persons  liable  therefor  as  stockholders." 

We  think  these  reasons  have  no  application  to  the  case  now  before 
us.  In  this,  there  was  an  act  of  incorporation  from  the  legislature. 
There  is  no  question  that  the  corporate  powers  which  it  conferred  were 
assumed  by  the  persons  by  whom  it  was  intended  that  they  should  be 
enjoyed,  so  far  as  the}1  chose  to  avail  themselves  of  them.  The  organ- 
ization was  not  strictly  regular,  but  can  hardly  be  considered  even  as 
defective. 

And  if  the  object  of  the  statute  is  regarded,  by  which  it  is  required 
that  the  first  meeting  shall  be  called  by  a  majority  of  the  persons 
named  in  the~act  of  incorporation,  it  will  be  evident  that  it  is  directory 
merely,  and  only  designed  to  secure  the  rights  conferred  by  the  charter 
to  those  to  whom  it  was  granted,  among  themselves,  byproviding  an 
orderly  method  of  organization.  Thus,  if  all  the  persons  interested 
should  come  together  without  an}'  notice  or  call  whatever,  and  proceed 
to  accept  the  charter,  and  do  the  other  acts  necessary  to  constitute  the 
corporation,  we  cannot  doubt  that  their  action  would  be  valid,  and  that 
neither  the  public,  nor  any  persons  not  belonging  to  the  association, 
would  have  any  interest  to  question  their  proceedings. 

The  purpose  of  the  statute  was  probably  to  avoid  such  difficulties  as 
were  disclosed  in  the  case  of  Lechmere  Sank  v.  Boynton,  11  Gush. 
369,  where  two  parties  had  attempted  to  organize  separately  under  the 
same  charter,  each  claiming  to  be  the  corporation. 

There  is  nothing  in  the  facts  found  and  reported  to  show  that  all 
persons  interested  were  not  actually  notified  of  the  meeting  for  organ- 
ization. On  the  contrary,  it  would  seem  that  they  were.  No  one  has 
questioned  the  regularity  of  the  proceedings,  or  claimed,  as  in  Lech- 
mere  Bank  v.  lioynton,  a  right  to  organize  in  a  different  manner. 
The  evidence  was  ample  to  show  that  the  persons  named  in  the  act  of 
incorporation  with  their  associates,  or  at  least  all  of  them  who  desired 
to  do  so,  have  accepted  the  act,  organized  under  it,  issued  stock, 
elected  officers  who  have  acted  and  served  in  that  capacity,  carried  on 
business,  contracted  debts,  and  exercised  all  the  functions  of  corporate 
existence.  It  is  therefore  too  late  to  deny  that  the  corporation  ever 
had  any  legal  existence,  or  for  these  officers  to  avoid  the  liabilities 
which  the  statutes  of  the  Commonwealth  impose. 


CHERAW  AXD   CHESTER   RAILROAD   CO.   V.   WHITE.  79 

The  defendant  Brackett,  who  was  treasurer  in  February  1861,  ap- 
pears to  have  been  liable  with  the  directors  under  the  provisions  of 
Gen.  Sts.  c.  60,  §§  18,  20,  31.  Exceptions  sustained. 


CHER  AW   &   CHESTER  R.   CO.   v.   WHITE. 

1880.     14  South  Carolina,  5 1.1 

WILLARD,  C.  J.  This  action  was  brought  to  recover  the  amount  of  a 
subscription  to  the  capital  stock  of  the  plaintiff  company,  alleged  to 
have  been  made  by  the  defendant,  and  not  duly  complied  with  on  his 
part.  The  defendant  demurred  to  the  complaint  on  various  grounds. 
This  demurrer  was  overruled  by  the  Circuit  Court,  and  leave  to 
answer  granted  on  terms.  From  this  decision  the  defendant  now 
appeals. 

The  first  ground  of  demurrer  is,  that  the  plaintiff  has  no  capacity  to 
sue.  Several  propositions  are  stated  under  this  ground  of  demurrer 
that,  in  substance,  involve  the  general  proposition  that  the  plaintiffs 
have  received,  by  law,  only  authority  to  become  a  corporation  upon 
the  performance  of  certain  conditions  precedent,  and  that  the  com- 
plaint contains  no  allegations  showing  that  such  conditions  have  been 
performed. 

The  act  to  charter  the  plaintiff  company,  passed  February  27th, 
1873,  (15  Stat.  442,)  confers  corporate  powers  on  the  corporators 
named,  in  terms  importing  an  immediate  grant,  with  the  following 
proviso  annexed  :  "  Provided  that  said  persons  shall  commence  opera- 
tions upon  said  road  within  two  years  after  the  passage  of  this  act, 
and  complete  the  same  within  five  years."  The  period  of  completion 
is  stated  by  Section  6  at  seven  }-ears,  but  this  conflict  of  time  is  not 
material  to  the  present  question.  The  question  is  whether  the  proviso 
can  have  the  effect  to  convert  a  grant  of  the  corporate  franchise,  made 
in  terms  that  import  an  immediate  grant,  into  one  taking  effect  only 
upon  the  happening  of  a  certain  contingenc}'.  If  the  purpose  intended 
by  the  proviso  cannot  be  fully  accomplished  without  a  limitation  of  the 
broad  sense  of  the  language  conferring  the  franchise,  then  such  effect 
can  be  accomplished  consistently  with  the  rules  of  construction,  for,  in 
that  case,  the  proviso  would  be  necessarily  interpreted  as  a  condition 
in  substance  and  effect.  As  a  condition  subsequent  this  is  undoubt- 
edly the  effect  of  the  proviso,  but  does  it  contain,  in  itself,  anything 
that  imports  a  necessit}-  that  it  should  operate  as  a  condition  preced- 

1  Statement  omitted.  Only  so  much  of  opinion  is  given  as  relates  to  one 
point.  —  ED. 


80  CHERAW   AND  CHESTER   RAILROAD   GO.   V.   WHITE. 

dent?  Two  things  are  to  be  considered  in  this  respect:  First.  What 
is  essential  to  the  full  efficacy  of  the  matter  of  the  proviso  itself? 
Second.  What  would  be  the  effect  of  allowing  it  to  stand  as  a  condition 
precedent  on  the  completeness  of  the  powers  granted  for  the  purpose 
intended  by  the  grant,  and  to  which  the  terms  of  the  proviso  stand  as 
a  condition?  It  certainly  was  intended  that  the  corporators  should 
have  all  the  powers  and  capacity  properly  incident  to  a  railroad  corpo- 
ration for  the  purpose  of  enabling  it  to  commence  and  complete  the 
road  in  the  times  prescribed  by  the  law,  for  it  must  be  assumed  that  the 
construction  of  the  road  was  deemed  a  public  benefit,  and  that  the  acqui- 
sition of  that  benefit  to  the  public  was  the  true  consideration  of  the  grant, 
"  and,  in  this  light,  the  proviso  must  be  regarded  as  directly  intended  as 
a  means  of  hastening  its  construction.  This  view  also  excludes  the 
idea  that  the  proviso  was  intended  to  limit  the  capacit}-  or  powers  of 
the  company  to  construct  the  road  within  the  times  prescribed  for  that 
purpose.  It  must  certainly  be  assumed  that  the  possession  of  corpo- 

Irate  powers  during  the  time  that  the  company  was  organizing  and 
acquiring  the  capital  and  credit  requisite  to  construct  the  road  was  a 
material  aid  toward  the  accomplishment  of  that  result.  _It_is_fairl  then, 
to  assume  that  the  grant,  in  terms  importing  immediate  corporate 
capacity,  was  intended  to  operate_as  such  for  the  purpose  of  con ferri ng 
"on  the  corporation  thejnost  perfect  means  for  accomplishing  that  which 
ft' was  the  purpose  of  thejp_royjgo_tP  secure.  So  far  then  from  its  being 
"essential  to~the"'eTHcacy_of_the  provi8o_that_the  sense  of  the  terms  grant- 
ing, directly,  the  corporate  franchise  should  be  narrowed,  the  purpose 

""of  the  proviso  la  best  subserved  hv  bold innr -these  powers  intact  accord- 
ing" to  the  terms  in  which  they  were  granted.  If,  at  the  end  of  two 
years,  the  corporation  had  not  commenced  to  construct  the  road,  every 
object  intended  to  be  secured  to  the  state  and  to  the  public,  by  the 
limitation,  would  be  fully  attained,  even  if  the  company  had  at  once, 
upon  the  granting  of  the  charter,  become  a  corporation.  The  ex- 
tinguishment of  the  franchise  of  building  and  operating  a  railroad 
would  have  followed,  and  the  right  to  exercise  the  functions  of  a  cor- 
poration would  have  fallen  with  it  as  an  accessory.  On  the  other 
hand  if  the  grant  is  held  to  be  subject  to  a  condition  precedent,  by 
reason  of  the  limitation  as  to  commencing  work  in  two  3'ears,  the  argu- 
ment that  would  produce  that  result  would  go  a  step  further  and  make 
the  completion  of  the  road  a  condition  precedent.  In  that  case  the 
anomaly  would  he  presented  of  a  company  undertaking  the  construc- 
tion  and  completion  of  a  work  of  such  magnitude  wit.hj2i^Jj^j22^i^f_ 

-ji  corporation,  and  only  honing  to  obtain  such  powers  when  the  work 
Ladbcen  accomplished..  Such  an  intention  cannot  be  ascribed  to  the 
statute'  It  is  clear  that  the  demurrer  was  properly  overruled  as  it 
regards  the  ground  just  considered. 

•  •  •  •  •  .  .  .. 

Judgment  affirmed. 


BRODERIP   V.    SALOMON.  81 


BRODERIP  v,   SALOMON. 

1895.     L.  R.  (1895)  2  Chan.  323.1 

IN  1892,  Aron  Salomon  was  carrying  on  business  as  a  leather  mer- 
chant &c.,  and  was  solvent.  July  28,  1892,  a  Limited  Company  was 
registered  for  the  ostensible  purpose  of  taking  over  and  carrying  on  the 
business  then  conducted  by  Salomon.  The  memorandum  of  associa- 
tion was  subsci'ibed  by  Salomon,  his  wife,  his  daughter,  and  his  four 
sons,  each  subscribing  for  one  share.  Aron  Salomon  afterwards  had 
20,000  shares  allotted  to  him.  No  one  else  ever  had  a  share.  Deben- 
tures to  the  amount  of  10,000£,  constituting  a  first  charge  on  the 
assets,  were  issued  to  Salomon.  These  debentures  were  subsequently 
cancelled,  and  other  debentures  for  the  same  amount  were,  at  the 
request  of  Salomon,  issued  in  1893  to  Broderip,  as  a  security  for 
5000£.  lent  by  him  to  Salomon,  which  sum  Salomon  shortly  after- 
wards lent  to  the  Company  at  10  per  cent  interest.  Oct.  11,  1893, 
Broderip  commenced  an  action  on  behalf  of  himself  and  all  the 
debenture  holders,  to  enforce  his  security.  Oct.  25,  an  official  receiver 
was  appointed.  Oct.  26,  an  order  was  made  for  compulsory  winding 
up.  The  Company  put  in  a  defence  and  counter-claim,  making  Salo- 
mon a  part}7  to  the  counter-claim.  At  the  time  of  the  Company's  going 
into  liquidation,  11,264/.  was  due  to  unsecured  creditors  whose  debts 
had  been  contracted  since  the  formation  of  the  Company.  About 
77331.  of  this  was  due  to  trade  creditors,  the  rest  to  Salomon.  The 
liquidator  has  realized  the  assets,  by  arrangement  without  prejudice  to 
any  question  on  the  counter-claim.  He  has  paid  Broderip's  "mort- 
gage debt  on  the  debentures,"  and  the  rest  of  the  proceeds  will  not  be 
sufficient  to  satisfy  what  remains  due  on  the  debentures.  Salomon 
claims  whatever  there  may  be  as  owner  of  the  debentures. 

The  action  was  tried  before  VAUGHAN  WILLIAMS  J.  [The  follow- 
ing is  an  abridgment  of  the  opinion  of  the  learned  Judge.] 

There  was  no  fraud  on  the  shareholders,  inasmuch  as  they  were  all 
perfectly  cognizant  of  the  conditions  under  which  the  Company  was 
formed,  and  as  there  was  no  intention  to  allot  further  shares  at  a  later 
period  to  outsiders.  But  the  Company  was  a  mere  nominee  of  Salo- 
mon's ;  and  the  case  is  to  be  dealt  with  as  if  the  nominee,  instead  of 
being  the  Company,  had  been  some  individual  agent  of  Salomon's  to 
whom  he  had  purported  to  sell  this  business.  In  that  case  the  trustee 
in  bankruptcy  of  the  agent  would  have  had  a  right  to  make  Salomon 
indemnify  the  agent  against  the  debts  that  he  had  contracted  by  the 
direction  of  his  principal.  The  right  of  the  liquidator  in  the  present 
case  is  precisely  the  same,  notwithstanding  the  debentures  which  were 
a  mere  form,  intended  to  give  an  appearance  of  reality  to  a  sale  which, 

1  Statement  rewritten.    Arguments  omitted ;  also  portions  of  opinions.  —  ED. 

6 


82  BRODERIP  V.   SALOMON. 

in  fact,  was  no  sale  at  all,  because  it  was  a  sale  by  a  man  to  an  agent  for 
his  own  profit  This  business  was  Salomon's  business,  and  no  one  else's. 
The  creditors  of  the  Company  could,  in  my  opinion,  have  sued  Salo- 
mon. Their  right  to  do  so  would  depend  on  the  circumstances  of  the 
ease,  whether  the  Company  was  a  mere  alias  of  the  founder  or  not. 
The  relationship  of  principal  and  agent  existed  between  Salomon  and 
the  Company.  The  moment  the  creditors  succeed  in  establishing  the 
identity  of  Salomon  with  the  Company,  the  creditors  of  the  Company 
thereupon  are  shown  to  be  the  creditors  of  Salomon ;  and  although  it 
is  necessary,  in  order  to  get  rid  of  the  priority  given  to  Salomon  by 
these  debentures,  that  one  should  fall  back  upon  the  lien  of  the  Com- 
pany as  his  agent,  whom  he  was  bound  to  indemnify,  I  do  not  mean 
to  exclude  from  my  judgment  that  the  debentures  were  given  to  Salo- 
mon by  his  agent,  the  Company,  and  that  the  necessaiy  effect  of 
Salomon  as  principal,  taking  these  debentures  from  his  agent,  the 
Com  pan}',  was  that  his  creditors  —  for,  according  to  my  view,  the 
creditors  of  the  Company  were  his  creditors  —  were  defeated  and 
delayed  by  the  debentures. 

His  Lordship  made  the  following  order :  — 

Declare  that  the  plaintiffs,  A.  Salomon  &  Co.  Limited,  or  the  liqui- 
dator thereof  are,  or  is  entitled  to  be  indemnified  by  the  defendant 
A.  Salomon  against  the  sum  of  7733/.  8s.  3d.  .  .  . 

Order  and  adjudge  that  the  plaintiffs,  A.  Salomon  &  Co.  Limited, 
do  recover  against  defendant  A.  Salomon  the  said  sum  of  77331.  8s.  3d. 

Declare  that  plaintiffs,  A.  Salomon  &  Co.  Limited,  are  entitled  to  a 
lien  for  the  said  sum  of  77331.  8s.  3d.,  upon  all  sums  which  would  be 
payable  to  defendant  A.  Salomon  out  of  the  assets  of  the  plaintiffs 
A.  Salomon  &  Co.  Limited,  in  respect  of  the  debentures  issued  by  the 
said  Company  to  the  defendant  E.  Broderip  in  the  pleadings  mentioned 
or  otherwise,  and  that  the  defendant  A.  Salomon  is  not  entitled  to 
make  any  claim  against  the  assets  of  the  plaintiffs  A.  Salomon  &  Co. 
Limited,  until  the  said  sum  of  7733?.  8s.  3d.  has  been  satisfied. 

Aron  Salomon  gave  notice  of  appeal.  The  Company  gave  a  counter- 
notice  of  contention  that  [inter  alia]  they  were  entitled  to  have  the 
agreement  for  the  sale  of  Salomon's  business  and  property  to  the  Com- 
p&ny  rescinded. 

Buckley,  Q.  C.  and  Muir  Mackenzie  (Me Call,  Q.  C.  with  them), 
for  Salomon. 

Farirell,  Q.  C.  and  Theobald,  for  the  company. 

LINDLEY  L.  J.  This  is  an  appeal  by  Mr.  Aron  Salomon  against  an 
order  made  by  Vaughan  "Williams  J.,  and  which,  in  effect,  directs  Mr. 
A.  Salomon  to  indemnify  a  limited  company  formed  by  him  against  the 
unsecured  debts  and  liabilities  incurred  by  or  in  the  name  of  the  com- 
pany whilst  it  carried  on  business. 

The  appeal  raises  a  question  of  very  great  importance,  not  only  to 
the  persons  immediately  affected  by  the  decision,  but  also  to  a  largo 
number  of  persons  who  form  what  are  called  "  onc-uian  companies." 


BRODERIP   V.    SALOMON".  83 

Such  companies  were  unheard  of  until  a  comparative!}-  recent  period, 
but  have  become  very  common  of  late  years. 

The  material  facts  of  this  case  are  as  follows :  [His  Lordship,  after 
stating  the  facts  of  the  case  to  the  same  effect  as  above,  and  adding 
that  as  to  the  20,000  shares  allotted  to  Aron  Salomon  he  (Aron  Salo- 
mon) contended  he  had  paid  for  them  though  no  call  had  ever  been 
made ;  that  the  liquidator,  on  the  other  hand,  claimed  20,000/.  from 
A.  Salomon  in  respect  of  these  shares  ;  that  A.  Salomon  had  received 
moneys  from  the  company,  but  that  it  did  not  appear  whether  he  had 
paid  the  company  for  his  shares,  and  that  this  was  a  matter  which  it 
was  unnecessary  to  pursue  further  on  the  present  occasion,  proceeded 
as  follows  :  — ] 

I  proceed  to  examine  the  legal  aspect  of  this^case,  which,  as  I  have 
said,  is  one  of  great  general  importance.  There  can  be  no  doubt  that 
in  this  case  an  attempt  has  been  made  to  use  the  machinery  of  the 
Companies  Act,  18G2,  for  a  purpose  for  which  it  never  was  intended. 
The  legislature  contemplated  the  encouragement  of  trade  by  enabling 
a  comparatively  small  number  of  persons  —  namely,  not  less  than 
seven  —  to  carry  on  business  with  a  limited  joint  stock  or  capital, 
and  without  the  risk  of  liability  beyond  the  loss  of  such  joint  stock 
or  capital.  But  the  legislature  never  contemplated  an  extension  of 
limited  liability  to  sole  traders  or  to  a  fewer  number  than  seven.  In 
truth,  the  legislature  clearly  intended  to  prevent  anything  of  the  kind, 
for  s.  48  takes  away  the  privilege  conferred  by  the  Act  from  those  mem- 
bers of  limited  companies  who  allow  such  companies  to  carry  on  busi- 
ness with  less  than  seven  members ;  and  by  s.  79  the  reduction  of  the 
number  of  members  below  seven  is  a  ground  for  winding  up  the  com- 
pany. Although  in  the  present  case  there  were,  and  are,  seven  mem- 
bers, yet  iTis  manifestthat  six  of  them  are  members  simply  in^Srderto 
pnflhlp  t.hft  spypnt.h  himself  to  carry  on  business  with  limited  liability? 
The  object  of  ^he  whole  arrangement  is  t,p_(fo_the_veiy  thing  which  the 
legislature  intended  not  to  be  done :  andt  ingenious  as  the  scheme  is, 
itcannot  have  the  effect  desired  so  lon%  as  the  law  remains  unaltered. 
This  was  evidently  the  view  taken  -by  Vaughan  Williams  J. 

The  incorporation  of  the  company  cannot  be  disputed.  (See  s.  18 
of  the  Companies  Act,  1862.)  Whether  by  any  proceeding  in  the 
nature  of  a  scire  facias  the  Court  could  set  aside  the  certificate  of 
incorporation  is  a  question  which  has  never  been  considered,  and  on 
which  I  express  no  opinion  ;  but,  be  that  as  it  ma}-,  in  such  an  action  as 
this  the  validity  of  the  certificate  cannot  be  impeached.  The  company 
must,  therefore,  be  regarded  as  a  corporation,  but  as  a  corporation 
created  for  an  illegitimate  purpose.  Moreover,  there  having  always 
been  seven  members,  although  six  of  them  hold  only  one  ll.  share 
each,  Mr.  Aron  Salomon  cannot  be  reached  under  s.  48,  to  which  I 
have  already  alluded.  As  the  company  must  be  recognized  as  a  cor- 
poration, I  feel  a  difficulty  in  saying  that  the  company  did  not  carry  on 
business  as  a  principal,  and  that  the  debts  and  liabilities  contracted  in 


84  BRODEKIP   V.   SALOMON. 

its  name  are  not  enforceable  against  it  in  its  corporate  capacity.  But 
it  does  not  follow  that  the  order  made  by  Vaughan  Williams  J.  is 
wrong.  A  person  may  carry  on  business  as  a  principal  and  incur  debts 
and  liabilities  as  such,  and  yet  be  entitled  to  be  indemnified  against 
those  debts  and  liabilities  by  the  person  for  whose  benefit  lie  carries  on 
the  business.  The  company  in  this  case  has  been  regarded  by  Vaughan 
Williams  J.  as  the  agent  of  Aron  Salomon.  j_  should  i-iitlipr  likon  thn 
mniinnvjn  u  trustee  for  him  —  a  truatea-  impr-opurly-hrought  into  ex-. 


Tstcnce  by  him  to  enable  him  to  do  whaj  HIP  stn'l-i*"  pytjnjiitg  It  is. 
"manifest  that  the  other  members  of  the  company  have  practically  no 
interest  in  it,  and  their  names  have  merely  been  used  by  Mr.  Aron 
Salomon  to  enable  him  to  form  a  company,  and  to  use  its  name  in  order 
to  screen  himself  from  -liability.  This  view  of  the  case  is  quite  con- 
sistent with  In  re  George  Newman  &  Co.1  In  a  strict  legal  sense  the 
business  may  have  to  be  regarded  as  the  business  of  the  company  ; 
but  if  any  jury  were  asked,  Whose  business  was  it?  the}-  would  say 
Aron  Salomon's,  and  they  would  be  right,  if  they  meant  that  the  bene- 
ficial interest  in  the  business  was  his.  I  do  not  go  so  far  as  to  say 
that  the  creditors  of  the  company  could  sue  him.  In  my  opinion,  they 
can  only  reach  him  through  the  company.  Moreover,  Mr.  Aron  Salo- 
inon's  liability  to  indemnify  the  company  in  this  case  is,  in  my  view, 
ttKr"legaT  consequence  of  the  formation  of  the  company  in  order  to 
•ttaiD  a  result  not  permitted  by  law.  The  liability  does  not  arise 
simply  from  the_Jact  that  he  holds  nearly  all  the  shares  in  the  com- 
A  man  nm^do  t.lmt.  nnrl  ypf.  hp  \\\\c\ov  up  such  liability  as  Mr. 
^  Salomon  has_come  under.  His  liabilit}-  rests  on  the  purpose  for 
which  he  formedthe  company,  on  the  wa}"  he  formed  it,  and  on  the  use 
which  he  made  of  it.  There  are  main'  small  companies  which  will  be 
quite  unaffected  by  this  decision.  But  there  may  possibly  be  some 
which,  like  this,  are  mere  devices  to  enable  a  man  to  carry  on  trade  with 
limited  liability,  to  incur  debts  in  the  name  of  a  registered  company, 
und  to  sweep  off  the  company's  assets  by  means  of  debentures  which 
he  has  caused  to  be  issued  to  himself  in  order  to  defeat  the  claims  of 
those  who  have  been  incautious  enough  to  trade  with  the  company  with- 
out |x?rceiving  the  trap  which  he  has  laid  for  them. 

It  is  idle  to  say  that  persons  dealing  with  companies  are  protected  by 
s.  43  of  the  Companies  Act,  1862,  which  requires  mortgages  of  limited 
companies  to  be  registered,  and  entitles  creditors  to  inspect  the  regis- 
ter. It  is  only  when  a  creditor  begins  to  fear  he  may  not  be  paid  that 
he  thinks  of  looking  at  the  register  ;  and  until  a  person  is  a  creditor 
he  has  no  right  of  inspection.  As  a  matter  of  fact,  persons  do  not  ask 
to  see  mortgage  registers  before  they  deal  with  limited  companies  ;  and 
tills  is  perfectly  well  known  to  every  one  acquainted  with  the  actual 
working  of  the  Companies  Acts  and  the  habits  of  business  men.  Mr. 
Aron  Salomon  and  his  advisers,  who  were  evidently  very  shrewd  people, 
were  fully  alive  to  this  circumstance. 

1  [1895]  I  Ch.  674. 


BRODERIP   V.   SALOMON.  85 

If  the  legislature  thinks  it  right  to  extend  the  principle  of  limited 
liabilit}-  to  sole  traders  it  will  no  doubt  do  so,  with  such  safeguards,  if 
any,  as  it  may  think  necessaiy.     But  until  the  law  is  changed  such  at- 
tempts as  these  ought  to  be  defeated  whenever  the}'  are  brought  to    ^ 
light.     They  do  infinite  mischief ;  the}'  bring  into  disrepute  one  of  the   ' 
most  useful  statutes  of  modern  times,  by  perverting  its  legitimate  use, 
and  by  making  it  an  instrument  for  cheating  honest  creditors. 

Mr.  Aron  Salomon's  scheme  is  a  device  to  defraud  creditors. 

Agreeing  as  I  do  in  substance  with  Vaughan  Williams  J.,  I  do  not 
think  it  necessary  to  investigate  the  question  whether  the  so-called  sale 
of  the  business  to  the  company  ought  to  be  set  aside.  The  only  object 
of  setting  it  aside  is  to  obtain  assets  wherewith  to  pa}-  the  creditors, 
and  this  object  can  be  attained  on  sound  legal  principles  by  the  order 
which  he  lias  made.  In  the  event,  however,  of  this  case  going  further, 
I  will  add  that  I  regard  the  so-called  sale  of  the  business  to  the  com- 
pany as  a  mere  sham,  and  that  in  my  opinion  it  might,  if  necessary,  be 
set  aside  by  the  company  in  the  interest  of  its  creditors,  although  all 
the  shareholders,  such  as  they  were,  knew  of  and  assented  to  the 
arrangement.  They  were  simply  assisting  Mr.  Aron  Salomon  to  cany 
out  his  scheme.  I  cannot  regard  In  re  British  Seamless  Paper  Box 
Co.1  as  an  authority  against  a  rescission  of  such  a  transaction  as  this. 

We  have  carefully  considered  the  proper  form  of  order  to  be  made 
on  this  appeal,  and  the  order  of  the  Court  will  be  as  follows  :  The 
Court,  being  of  opinion  that  the  formation  of  the_cjHmmmx iheL  jagreer 
,ment  of  August,  1892,  and  the  issue  of  debentures  to  Arnn  jjalomnn 
pursuant  to  such  agreement,jvgreji  more  scheme  to  enfihlg  him  to  cany 
on  business  in  the  name  of  the  company  with  limited  liability,  contrary 
to  the  true  intent  and  meaning  of  the  Companies  Act,  Ijj62^and,  fur- 
ther, to  enable  him  to  obtain  a  preference  over  other  creditors  of  the 
companyjby^  procuring  a  Hrst  charge  on  the  nsspts  of  tha  nr>mpj>jn-  by 
means  of  such  debentures,  dismiss  the  appeal  of  Aron  Salomon  with 
^costs ;  and,  it  being  unnecessary  to  mako  any  nr<W  nnjhhp  liquidator's 
cross-notice  of  appeal,  disohnrgfi  t.lip.  ordej  directing_tjie  liquidator  to 
pay  costs  of  the  countcr-claim_,  and  g\\c  him  those  costs. 

LOPES  L.  «L  ThisPis  a  case  of  very  great  importance,  and  I  wish 
shortly  to  state  my  reasons  for  concurring  in  the  judgment  just  deliv- 
ered. I  do  not  propose  to  restate  the  facts  so  fully  and  clearly  detailed 
by  Lindle}-  L.  J.  :  I  shall  content  myself  with  shortly  stating  the  impres- 
sion they  have  produced  on  my  mind.  The  incorporation  of  the  com- 
pany was  perfect  —  the  machinery  by  which  it  was  formed  was  in  every  , 
respect  perfect,  every  detail  had  been  observed  ;  but,  notwithstanding, 
the  business  was,  in  truth  and  in  fact,  the  business  of  Aron  Salomon ; 
he  had  the  beneficial  interest  in  it ;  the  company  was  a  mere  no  minis 
umbra,  under  cover  of  which  he  carried  on  his  business  as  before,  secur- 
ing himself  against  loss  by  a  limited  liability  of  \l.  per  share,  all  of 

1  17  Ch.  I)  407. 


86  BRODERIP   V.   SALOMON. 

which  shares  he  practically  possessed,  and  obtaining  a  priority  over  the 
unsecured  creditors  of  the  company  by  the  debentures  of  which  he  had 
constituted  himself  the  holder. 

It  would  be  lamentable  if  a  scheme  like  this  could  not  be  defeated. 
If  we  were  to  permit  it  to  succeed,  we  should  be  authorizing  a  perver- 
sion of  the  Joint  Stock  Companies  Acts.  We  should  be  giving  vitality 
to  that  which  is  a  myth  and  a  fiction.  The  transaction  is  a  device  to 
apply  the  machinery  of  the  Joint  Stock  Companies  Act  to  a  state  of 
things  never  contemplated  by  that  Act  —  an  ingenious  device  to  obtain 
the  protection  of  that  Act  in  a  way  and  for  objects  not  authorized  by 
that  Act,  and  in  my  judgment  in  a  way  inconsistent  with  and  opposed 
to  its  policy  and  provisions.  It  never  was  intended  that  the  company 
to  be  constituted  should  consist  of  one  substantial  person  and  six  mere 
dummies,  the  nominees  of  that  person,  without  any  real  interest  in  the 
company.  The  Act  contemplated  the  incorporation  of  seven  inde- 
pendent bon£  fide  members,  who  had  a  mind  and  a  will  of  their  own, 
and  were  not  the  mere  puppets  of  an  individual  who,  adopting  the 
machinery  of  the  Act,  carried  on  his  old  business  in  the  same  way  as 
before,  when  he  was  a  sole  trader.  To  legalize  such  a  transaction 
would  be  a  scandal. 

But  to  what  relief  is  the  liquidator  entitled?  In  the  circumstances 
of  this  case  it  is,  in  m}'  opinion,  competent  for  the  Court  to  set  aside 
the  sale  as  being  a  sale  from  Aron  Salomon  to  himself —  a  sale  which 
had  none  of  the  incidents  of  a  sale,  was  a  fiction,  and  therefore  invalid  ; 
or  to  declare  the  company  to  be  a  trustee  for  Aron  Salomon,  whom 
Aron  Salomon,  the  cestui  que  trust,  was  bound  to  indemnify ;  or  to 
declare  the  formation  of  the  company,  the  agreement  of  August,  1892, 
and  the  issue  of  the  debentures  to  Aron  Salomon  pursuant  to  such 
agreement,  to  be  merely  devices  to  enable  him  to  cany  on  business  in 
the  name  of  the  company  with  limited  liability,  contrar}'  to  the  true 
intent  and  meaning  of  the  Companies  Act,  1862,  and  further,  to  enable 
him  to  obtain  a  preference  over  other  creditors  of  the  company  by  ob- 
taining a  first  charge  on  the  assets  of  the  company  by  means  of  such 
debentures.  I  wish  to  add  that  I  am  inclined  to  think  that  a  scire  facias 
would  go  to  repeal  the  certificate  of  incorporation  ;  but  I  express  no 
decided  opinion  on  the  point.  The  appeal  will  be  dismissed  with 
costs. 

[KAY  L.  J.  delivered  a  concurring  opinion.]1 

[An  appeal  from  the  above  decision  in  Broderip  v.  Salomon  has 
recently  been  argued  in  the  House  of  Lords.  An  abstract  of  any 
decision  which  may  there  be  given  will  probably  be  inserted  in  an 
appendix  to  this  volume. — ED.] 

1  See  Montgomery  v.  Forbes,  in  next  section.  —  ED. 


FINNEGAN   V.   NOERENBERG.  87 


SECTION  IV. 

Corporations  De  Facto.    Associations  which  are  neither  Corpora- 
tions De  Jure  nor  Corporations  De  Facto. 

FINNEGAN  v.  NOERENBERG. 

1893.     52  Minnesota,  239.1 

GILFILLAN,  C.  J.  Eight  persons  signed,  acknowledged,  and  caused 
to  be  filed  and  recorded  in  the  office  of  the  city  clerk  in  Minneapolis, 
articles  assuming  and  purporting  to  form,  under  Laws  1870,  ch.  29, 
a  corporation,  for  the  purpose,  as  specified  in  them,  of  "  buj'ing,  own- 
ing, improving,  selling,  and  leasing  of  lands,  tenements,  and  heredita- 
ments, real,  personal,  and  mixed  estates  and  property,  including  the 
construction  and  leasing  of  a  building  in  the  city  of  Minneapolis,  Minn., 
as  a  hall  to  aid  and  cany  out  the  general  purposes  of  the  organization 
known  as  the  '  Knights  of  Labor.' "  The  association  received  sub- 
scriptions to  its  capital  stock,  elected  directors  and  a  board  of  man- 
agers, adopted  by-laws,  bought  a  lot,  erected  a  building  on  it,  and, 
when  completed,  rented  different  parts  of  it  to  different  parties.  The 
plaintiff  furnished  plumbing  for  the  building  during  its  construction, 
amounting  to  $599.50,  for  which  he  brings  this  action  against  several 
subscribers  to  the  stock,  as  copartners  doing  business  under  the  firm 
name  of  the  "  K.  of  L.  Building  Association."  The  theoiy  upon  which 
the  action  is  brought  is  that,  the  association  having  failed  to  become  a 
corporation,  it  is  in  law  a  partnership,  and  the  members  liable  as 
partners  for  the  debts  incurred  by  it. 

It  is  claimed  that  the  association  was  not  an  incorporation  because 
—  .First,  the  act  under  which  it  attempted  to  become  incorporated,  to 
wit,  Laws  1870,  ch.  29,  is  void,  because  its  subject  is  not  properly 
expressed  in  the  title ;  second,  the  act  does  not  authorize  the  formation 
of  corporations  for  the  purpose  or  to  transact  the  business  stated  in  the 
articles ;  third,  the  place  where  the  business  was  to  be  carried  on  was 
not  distinctly  stated  in  the  articles,  and  they  had,  perhaps,  some  other 
minor  defects. 

It  is  unnecessary  to  consider  whether  this  was  a  dejure  corporation, 
so  that  it  could  defend  against  a  quo  warranto,  or  an  action  in  the 
nature  of  quo  warranto,  in  behalf  of  the  state ;  for,  although  an 
association  may  not  be  able  to  justify  itself  when  called  on  by  the  state 
to  show  by  what  authority  it  assumes  to  be,  and  act  as,  a  corporation, 
it  may  be  so  far  a  corporation  that,  for  reasons  of  public  policy,  no  one 
butjjip  ntnte  will  ho  pnrmitted  to  call  in  question  the  lawfulness  uf  its 
organization.  Such  is  what  is  termed  a  corporation  de  facto,  —  that 
is,  a  corporation  from  the  fact  of  its  acting  as  such,  though  not  in  law 

1  Statement  and  arguments  omitted.  — ED. 


88  FINNEGAN   V.   NOERENBERG. 

or  of  right  a  corporation.  What  is  essential  to  constitute  a  body  of 
men  a  °le  facto  corporation  is  stated  by  Selden,  J.,  in  Methodist,  etc., 
Church  v.  Pickett,  19  N.  Y.  482,  as  "  (1)  the  existence  of  a  charter  or 
some  law  under  which  a  corporation  with  the  powers  assumed  might 
lawfully  be  created  ;  and  (2)  a  user  by  the  party  to  the  suit  of  the 
rights  claimed  to  be  conferred  by  such  charter  or  law."  This  state- 
ment was  apparently  adopted  by  this  court  in  East  Norway  Church  v. 
Ffoislie,  37  Minn.  447,  (35  N.  W.  Rep.  260 ;)  but,  as  it  leaves  out  of 
account  anv  attempt  to  organize  under  the  charter  or  law,  we  think 
the  statement  of  what  is  essential  defective.  The  definition  in  Taylor 
on  Private  Corporations  (page  145)  is  more  nearly  accurate :  "  When  a 
body  of  men  are  acting  as  a  corporation,  under  color  of  apparent 
organization,  in  pursuance  of  some  charter  or  enabling  act,  their  author- 
ity to  net  as  a  corporation  cannot  be  questioned  collaterally." 

To  give  a  body  of  men  assuming  to  act  as  a  corporation,  where  there 
has  been  no  attempt  to  comply  with  the  provisions  of  any  law  authoriz- 
ing them  to  become  such,  the  status  of  a  de  facto  corporation  might 
open  the  door  to  frauds  upon  the  public.  It  would  certainly  be  impoli- 
tic to  permit  a  number  of  men  to  have  the  status  of  a  corporation  to 
any  extent  merely  because  there  is  a  law  under  which  they  might  have 
become  incorporated,  and  they  have  agreed  among  themselves  to  act, 
and  they  have  acted,  as  a  corporation.  That  was  the  condition  in 
Johnson  v.  Corser,  34  Minn.  355,  (25  N.  W.  Rep.  799,)  in  which  it 
was  held  that  what  had  been  done  was  ineffectual  to  limit  the  individ- 
ual liability  of  the  associates.  They  had  not  gone  far  enough  to  become 
a  de  facto  corporation.  They  had  merely  signed  articles,  but  had  not 
attempted  to  give  them  publicity  by  filing  for  record,  which  the  statute 
required. 

"  Color  of  apparent  organization  under  some  charter  or  enabling 
act "  does  not  mean  that  there  shall  have  been  a  full  compliance  with 
what  the  law  requires  to  be  done,  nor  a  substantial  compliance.  A 
substantial  compliance  will  make  a  corporation  de  jure.  But  there 
must  be  an  apparent  attempt  to  perfect  an  organization  under  the  law. 
There  being  such  apparent  attempt  to  perfect  an  organization,  the 
failure  as  to  some  substantial  requirement  will  prevent  the  body  being 
a  corporation  de  jure  ;  but,  if  there  be  user  pursuant  to  such  attempted 
organization,  it  will  not  prevent  it  being  a  corporation  de  facto. 

[The  Court  then  held,  that  the  subject  of  the  act  was  properly 
expressed  in  the  title,  and  that  the  statute  authorized  the  formation  of 
corporations  for  the  purposes  stated  in  the  articles  signed  by  these 
<1(  fcndaiits.  The  opinion  then  proceeds  as  follows  :]  The  omission  to 
state  distinctly  in  the  articles  the  place  within  which  the  business  is  to 
be  carried  on,  though  that  might  be  essential  to  make  it  a  de  jure 
corporation,  would  not  prevent  it  becoming  one  de  facto. 

The  foundation  for  a  de  facto  corporation  having  been  laid  by  the 
attempt  to  organize  under  the  law,  the  user  shown  was  sufficient. 

Judgment  [for  defendants]  affirmed. 


BUFFALO  AND   ALLEGANY   RAILROAD   CO.   V.   GARY.  89 


BUFFALO  &  ALLEGANY  R.  CO.  v.  GARY,  ADM'K. 

1862.     26  New  York,  75. 

APPEAL  from  the  Superior  Court  of  Buffalo.  Action  upon  the  sub- 
scription of  the  intestate  to  the  capital  stock  of  the  plaintiff.  The 
plaintiff  undertook  to  become  incorporated  under  the  general  railroad 
act  of  1850.  In  May,  1853,  its  articles  of  association  were  filed,  and 
the  intestate,  June  8th"  thereafter,  became  a  subscriber  for  one  thousand^ 
dollars  of  the  capital  stock,  and  paid  ten  per  cent  at  the  time  of  sub- 
scribing, and  died  in  September,  1853.  The  directors,  after  his  death, 
made  seven  calls  upon  the  stock  of  one  hundred  dollars  each,  and  for 
this  seven  hundred  dollars,  claimed  to  be  due,  this  action  was  brought. 
The  affidavit  indorsed  upon  and  filed  with  the  articles  of  association 
was  conceded  to  be  defective  ;  it  containing  no  statement  of  an  inten- 
tion in  good  faith  to  construct  or  operate  the  road  mentioned  in  the 
articles.  In  1858  a  law  was  passed  by  the  legislature  of  this  State 
authorizing  the  plaintiff  to  sell  its  property  and  effects  to  another  rail- 
road company;  and,  by  the  second  section  of  the  act,  the  plaintiff  was 
declared  to  be  a  valid  corporation,  duty  organized  under  the  act  to 
authorize  the  formation  of  railroad  corporations  and  to  regulate  the 
same,  passed  April  2d,  1850,  and  the  several  acts  amending  the  same, 
notwithstanding  any  error,  informality,  insufficiency,  act  or  omission, 
on  the  part  of  such  com  pan}'  or  any  of  its  stockholders  in  the  proceed- 
ings to  become  incorporated,  and  the  said  corporation  and  all  the  pro- 
ceedings of  its  stockholders  and  officers  were  therein*  legalized  and 
confirmed.  By  another  section,  it  was  provided  that  nothing  contained 
in  this  act  should  affect  any  suit  before  then  commenced  in  any  court. 
Upon  the  trial,  the  plaintiff  offered  in  evidence  certified  copies  of  the 
articles  of  association  filed  with  the  county  clerk  and  comptroller,  and 
they  were  objected  to,  on  the  ground  of  the  defect  in  the  affidavit.  The 
plaintiff  then  read  in  evidence  the  act  of  1858,  and  thereupon  the  court 
overruled  the  objection,  and  the  articles  of  association  were  read  in 
evidence,  and  the  defendant  excepted.  The  plaintiff  then  gave  evidence 
of  the  election  of  directors  and  officers,  June  1,  1853,  and  the  purchase 
of  the  route  of  the  proposed  road  after  such  election,  and  that  con- 
tracts were  made  for  its  construction,  and  that  the  contractors  entered 
upon  the  work  and  that  money  was  paid  on  various  subscriptions  to 
the  capital  stock  and  expended  on  the  road,  and  liabilities  incurred  in 
the  construction.  Evidence  was  given  of  the  various  calls  for  payment 
upon  the  stock,  counted  upon  in  the  complaint.  At  the  close  of  the 
evidence  the  defendant  moved  for  a  nonsuit,  on  the  ground  that  the 
plaintiff  had  failed  to  prove  its  corporate  existence  at  an}'  time  prior  to 
the  passage  of  the  act  of  1858,  if  at  all ;  and  that  the  defendant  was 
not  liable  on  the  subscription  of  the  intestate.  The  motion  wns  denied, 
and  the  defendant  excepted.  Judgment  was  given  for  the  plaintiff  for 


90  BUFFALO  AND  ALLEGANY  RAILROAD   CO.   V.    GARY. 

the  full  amount  claimed,  which  was  affirmed  at  general  term,  and  the 
defendant  appealed  to  this  court. 

The  case  was  submitted  to  the  court  upon  printed  briefs  and 
points  by 

Ashiir  P.  Nichols,  for  the  appellant. 

J»o  one  appearing  for  the  respondent. 

DKNIO,  Ch.  J.,  DAVIES,  WRIGHT,  GOULD  and  SMITH,  Js.,  were  for 
affirming  the  judgment.  Their  reasons  were  not  put  in  writing.  Those 
of  the  court  below  were  delivered  by  HASTEN,  J.,  as  follows  :  — 

The  defendant  contends  that  the  plaintiff's  organization  is  defective, 
because  the  affidavit  annexed  to  the  articles  of  association  does  not 
contain  the  allegation  required  by  the  statute,  "  that  it  is  intended  in 
good  faith  to  construct  or  to  maintain  and  operate  the  road  mentioned 
in  the  articles  of  association,"  arid  that  it  is  not  there  fore  a  corporation. 
The  articles  of  association  are  in  due  form,  and  the  affidavit  annexed 
to  them,  while  it  does  not  come  up  to  the  requirement  of  the  statute  in 
the  particular  specified,  is  colorable.  The  articles  and  affidavit  were 
filed  and  recorded  in  the  office  of  the  secretary  of  state;  the  capital 
stock  was  subscribed  and  partly  paid  in ;  the  route  of  the  road  was 
surveyed  and  located ;  the  right  of  way  obtained  ;  a  contract  for  the 
construction  of  the  whole  road  entered  into  and  liabilities  incurred 
which  have  not  been  satisfied.  This  was  sufficient  to  constitute  the 
plaintiff  a  corporation  de  facto,  so  that  neither  it  nor  its  stockholders 
can  object  that  it  is  not  strictly  a  corporation  de  jure. 

I  am  of  the  opinion  that,  under  this  and  similar  general  acts  for  the 
formation  of  corporations,  if  the  papers  filed,  by  which  the  corporation 
is  sought  to  be  created,  are  colorable,  but  so  defective  that,  in  a  pro- 
ceeding on  the  part  of  the  State  against  it,  it  would  for  that  reason  be 
dissolved,  yet  by  acts  of  user  under  such  an  organization  it  becomes  a 
corporation  de  facto,  and  no  advantage  can  be  taken  of  such  defect  in 
its  constitution,  collaterally,  by  any  person. 

An}'  other  rule,  it  seems  to  me,  must  be  fraught  with  serious  conse- 
quences and  great  public  mischief.  Most  of  the  persons  who  subscribe 
in  good  fuith  for  the  stock,  do  not  examine  to  see  whether  all  the 
requirements  of  the  statute  in  the  organization  of  the  corporation  have 
been  complied  with ;  and  if  they  did  examine  would  not  probably  dis- 
cover a  defect  like  the  one  now  pointed  out.  The  stock  is  sold  in 
market  from  hand  to  hand  without  any  such  examination.  The  corpo- 
ration may  carry  on  its  business  for  }'ears,  and  its  stock  have  entirely 
changed  hands,  when  its  property  may  be  destroyed  by  a  trespasser, 
and  in  an  action  against  him  in  the  name  of  the  corporation  his  only 
defence,  "  you  are  not  legally  a  corporation  by  reason  of  a  defect  in 
your  constitution,"  would  (upon  the  doctrine  contended  for  by  the  de- 
fendant) be  successful.  The  doctrine  of  estoppel  could  not  be  applied 
in  that  case,  as  it  has  been  in  some  cases,  to  counteract  an  erroneous 
decision  upon  the  question  now  before  me. 

J  am  aware  that  there  are  decisions  in  the  Supreme  Court,  beginning 


BUFFALO   AND   ALLEGANY   RAILROAD   CO.   V.   GARY.  91 

with  The  first  baptist  Society  v.  Rapalee  (16  Wend.  605),  upon  the 
point  now  presented  to  us,  in  conflict  with  the  opinion  I  have  here 
expressed.  Their  error  is,  in  not  recognizing  the  distinction  between, 
what  is  sufficient  to  constitute  a  corporation  de  facto  and  what  is  neces- 
sary to  constitute  one  de  jure,  and  how  and  by  whom  a  corporation  de 
facto  ma}T  be  shown  not  to  be  a  corporation  de  jure.  The  State  alone 
can  take  advantage  of  a  defect  in  the  constitution  of  a  corporation  like 
the  one  in  this  case.  In  its  action  it  will  be  governed  by  public 
policy  and  considerations.  And  it  has  declared  that  it  will  not  take 
advantage  of  the  defect  in  the  plaintiff's  constitution.  I  think  the 
Court  of  Appeals  has  settled  the  principle  as  I  have  stated  it.  (Eaton 
v.  Aspinwall,  19  N.  Y.,  119.) 

ALLEN,  J.,  (dissenting.)  The  plaintiff's  right  to  recover  must,  I 
think,  depend  upon  the  validit}'  and  sufficiency  of  the  proceedings  for 
their  incorporation  under  the  general  act  of  1850.  The  question  is 
upon  the  validity  of  the  contract  alleged  to  have  been  made  by  the 
intestate  by  his  subscription  on  the  8th  of  June,  1853  ;  and  the  tests  of 
its  validity  must  be  applied  as  of  that  date.  There  is  no  evidence  that 
he  did  anything,  after  that  time,  recognizing  the  existence  of  the  cor- 
poration, and  up  to  that  time  there  had  been  no  user  of  the  franchise 
which  would  estop  any  one  from  disputing  the  corporate  existence  of 
the  plaintiff.  All  that  had  been  done  under  the  articles  of  association 
was,  that  the  persons  named  as  directors  had  come  together  and  chosen 
from  their  number  a  president,  secretary,  treasurer  and  other  officers. 
This  was  in  no  sense  a  user  of  any  corporate  franchise  extended  to  the 
body  as  a  corporation  by  the  laws  of  the  State.  By  thus  getting 
together,  calling  themselves  a  corporation  and  electing  officers,  they 
did  not  become  a  corporation  quoad  third  persons  and  the  people,  so 
that  their  corporate  existence  could  only  be  questioned  by  the  Attor- 
ney-General upon  a  quo  warranto.  Had  the}',  on  the  2d  day  of  June, 
1853,  brought  an  action  as  a  corporation,  no  one  would  claim  that  this 
formal  election  of  officers  was  such  a  user  of  a  corporate  franchise  as  to 
constitute  them  a  corporation  de  facto.  And  yet  that  was  all  there 
was  when  the  plaintiff  subscribed  ;  and  if  they  were  not  then  a  corpo- 
ration, either  de  jure  or  de  facto,  the  contract  was  invalid,  and  the 
subsequent  acquisition  by  the  plaintiff  of  certain  corporate  rights,  as 
against  third  persons  and  the  public,  by  usurpation,  could  not  inure  by 
relation  to  establish  a  contract  against  an  individual  having  no  subse- 
quent concern  or  dealing  with  the  Company.  A  single  act  in  the 
exercise  of  the  franchise  claimed  would  not  be  a  user,  within  the  rule 
that  makes  a  user  evidence  of  corporate  existence ;  still  less  is  the 
preparation  to  enter  upon  the  user  sufficient  to  establish  the  existence 
of  a  corporation.  The  user  of  a  corporate  franchise  has  never,  so  far 
as  cases  have  come  to  my  notice,  been  relied  upon  or  regarded  as  evi- 
dence of  corporate  existence  in  actions  upon  subscriptions  to  the  capital 
stock.  Indeed  it  could  not  be,  for  the  reason  that  contracts  of  that 
character  are  incident  to  the  creation  of  the  corporation.  In  some  cases 


92  BUFFALO   AND   ALLEGANY  RAILROAD   CO.   V.    GARY. 

a  person  dealing  with  a  corporation  is  estopped  from  denying  its  exist- 
ence. (Angell  &  Ames  on  Corp.,  §  94.)  But  in  this  court,  as  well  as 
in  other  courts,  in  actions  upon  subscriptions  to  the  capital  stock,  the 
question  of  the  creation  and  existence  of  the  corporation  has  been 
regarded  as  an  open  question,  and  the  subscriber  has  not  been  con- 
cluded l>v  his  subscription.  The  questions  made  in  the  cases  that  have 
been  before  this  court  would  have  been  verj"  easily  disposed  of,  had 
the  doctrine  of  estoppel  been  deemed  applicable ;  and  the  fact  that 
the  proceedings  for  the  incorporation  have  been  examined  and  cases 
disposed  of  upon  the  merits,  is  very  high  evidence  that  the  subscriber 
is  at  liberty  to  controvert  the  existence  of  the  corporation.  (Eastern 
Plankroad  Co,  v.  Vaughan,  14  N.  Y.,  546 ;  l$uff.  and  Pittsburgh 
/?.  R.' Co.  v.  Hatch,  20  id.,  157.)  There  is  good  reason  why  the 
party  should  not  be  held  to  have  admitted  the  existence  of  the  corpo- 
ration by  his  subscription.  The  consideration  of  his  undertaking  is  the 
shares  of  stock  which  he  receives,  or  expects  to  receive,  from  the  cor- 
poration. If  the  company  has  not  been  legall}-  incorporated,  the  stock, 
as  such,  is  of  no  value :  it  has  no  existence.  He  agrees  to  pay  for 
what  he  cannot  get,  and  hence  his  promise  is  nudum  pactnm.  It  was 
decided,  in  The  First  Baptist  Society  v.  Rapalee  (16  Wend.,  605), 
that  a  promise  in  writing  to  pay  a  certain  sum  to  the  trustees  of  a 
certain  church  did  not  estop  the  promisor  from  requiring  proof,  or,  in 
other  words,  from  denying  the  incorporation  of  the  church.  (WeUand- 
Canal  Co.  v.  Hathaway,  8  Wend.,  480 ;  Central  Turnpike  Corpora- 
tion v.  Valentine,  10  Pick.,  142 ;  Proprietors  of  Norwich  and 
LmcestaflF  Navigation  v.  Theobald,  1  Mood.  &  Malk.,  151  ;  Schenec* 
tady  and  Saratoga  Plankroad  Company  v.  Thatcher,  1  Kern.,  1 02 ; 
Hensselaer  and  Washington  Plankroad  Co.  v.  Wetsel,  21  Barb.,  56  ; 
Hamilton  and  Deansville  Plankroad  Co.  v.  Rice,  7  id.,  157)  ;  all  of 
which,  with  the  exception  of  the  first,  were  actions  upon  stock  sub- 
scriptions, and  in  all  of  which  the  question  of  the  proper  organization 
and  incorporation  of  the  plaintiff  was  made  by  the  defendants  and  con- 
sidered by  the  court  Valk  \.  Crandell  (1  Sandf.  Ch.,  179,)  was  the 
case  of  a  subscription  intermediate  an  irregular  organization  of  a  bank- 
ing association,  by  a  certificate  not  in  conformit}-  with  the  statute,  and 
a  formal  perfect  organization  by  filing  a  certificate  as  required  by  law, 
and  it  was  held  that  the  subscription  and  the  mortgage  given  as  secur- 
ity were  void.  It  docs  not  need  the  citation  of  authority  to  the  prop- 
osition that  a  part}*,  seeking  to  avail  himself  of  a  special  privilege  or 
franchise  under  a  statute,  must  bring  himself  strictly  within  the  terms 
of  the  act,  the  benefit  of  which  he  seeks.  The  principle  is  elementarj*. 
The  statute  authorizing  the  creation  of  corporations,  by  the  voluntary 
association  of  individuals  for  that  purpose,  must  be  strictly  pursued. 
A  compliance  with  the  statute  is  a  condition  precedent  to  the  existence 
of  the  cor|K>ration.  No  act  required  by  the  statute  as  a  preliminary  to 
the  formation  of  the  corporation  can  be  omitted  as  non-essential.  In 
The  Eastern  Plankroad  Company  v.  Vaughan  (supra),  stress  was 


BUFFALO   AND   ALLEGANY   RAILROAD   CO.    V.   GARY.  93 

laid  upon  the  fact  that  the  documents  mentioned  and  called  for  by  the 
statute  contained  all  that  was,  in  terms,  required  to  be  inserted  in  them  ; 
thus  conceding  that  an}"  departure  from  the  statute,  in  omitting  to  com- 
ply with  a  positive  requirement,  would  have  been  fatal.  In  Buffalo 
and  Pittsburgh  Railroad  Company  \.  Hatch  (sitpra),  judgment  was 
given  for  the  plaintiff,  for  the  reason  that  there  was  a  substantial  com- 
pliance with  the  statute  in  all  respects  ;  and  the  same  remark  applies  to 
the  case  of  The  Schenectady  and  Saratoga  Plankroad  Company  v. 
Thatcher.  It  is  only  on  compliance  with  the  provisions  of  this  act 
that  the  articles  of  association  may  be  filed  in  the  office  of  the  Secretary 
of  State,  and  the  associates  become  a  corporation.  (Laws  of  1850, 
p.  211,  §  1.)  Section  2  of  this  act  forbids  the  filing  and  recording  of 
the  articles  of  association  and  the  incorporation  of  the  associates,  until 
there  is  indorsed  upon  or  annexed  to  such  articles  an  affidavit,  made 
by  at  least  three  of  the  directors  named  in  the  articles,  stating,  among 
other  things,  that  "it  is  intended  in  good  faith  to  construct  or  to 
maintain  and  operate  the  road  mentioned  in  such  articles  of  associa- 
tion." This  is  omitted  in  the  affidavit  filed  with  the  plaintiffs  articles 
of  association.  The  statute  required  some  evidence  of  the  good  faith 
of  the  associates,  and  prescribed  this  as  the  evidence  to  be  presented. 
When  the  legislature  parted  with  their  discretion  and  supervisory  con- 
trol in  the  matter  of  creating  railroad  corporations,  it  was  fit  and 
proper  that  the  public  should,  so  far  as  was  practicable,  be  protected 
against  fraudulent  or  speculative  organizations  under  the  general  act, 
and  hence  the  requirement  of  not  only  the  subscription  and  pa}'ment  of 
a  given  sum  per  mile  of  the  proposed  road,  but  an  affidavit  of  the  bona 
fide  intent  to  cany  into  effect  the  object  of  the  proposed  corporation. 
The  omission  of  this  part  of  the  required  affidavit  was  fatal  to  the  pro- 
ceedings for  the  incorporation  of  the  plaintiff.  It  was  so  regarded  by 
the  plaintiff  and  by  the  legislature,  and  hence  the  act  of  1858  was 
passed.  That  act  legalized  the  acts  of  the  corporation  from  the  first, 
and  to  some  extent  and  for  some  purposes  gave  them  the  same  rights 
as  against  third  persons  and  the  public  which  they  would  have  had  if 
the  proceedings  for  their  incorporation  in  the  first  instance  had  been 
perfect  and  regular.  But  the  act  could  not  have  a  retroactive  effect  so_ 
as  to  give  vitality  to  an  executory  contract  with  a_strajiger_r-£)id_in  its 
ince£tion,  jjorjhe  reason  that  there  was  no  corporation  capable  of  con- 
tracting. If  the  intestate  was  not  bound  by  his  promise  when  made, 
!K>  subsequent  act  of  the  legislature  could  create  a  liabilit}-.  The  legis- 
lature can  neither  make  nor  unmake  contracts  for  parties.  The  Con- 
stitution, as  well  as  the  well  defined  limits  of  legislative  power,  aside 
from  the  express  prohibition  of  the  Constitution,  forbid  this. 

The  judgment  should  be  reversed  and  a  new  trial  granted,  costs  to 
abide  event. 

SUTHERLAND,  J  _  also  dissented  ;  SELDEN,  J.,  expressed  no  opinion. 

Judgment  affirmed. 


94  MONTGOMERY  V.   FORBES. 


MONTGOMERY  v.  FORBES. 

1889.     148  Mass.  249. 

CONTRACT,  to  recover  the  price  of  goods  sold  and  delivered. 

At  the  trial  in  the  Superior  Court,  before  Deicey,  J.,  the  only  ques- 
tion was  whether  the  goods  were  sold  to  a  corporation  called  the  Forbes 
Woolen  Mills,  or  to  the  defendant  as  doing  business  under  that  name. 
The  plaintiffs  introduced  evidence  tending  to  show  that  subsequently 
to  May,  1885,  they  received  an  order  for  the  goods  by  a  letter,  written 
upon  paper  with  the  printed  heading,  "Incorporated  1885.  Forbes 
Woolen  Mills.  George  E.  Forbes,  Treasurer,"  and  signed,  "  Forbes 
Woolen  Mills  by  Geo.  E.  Forbes,  Treasurer ";  that  the}'  thereupon 
shipped  the  goods  to  the  Forbes  Woolen  Mills  and  received  in  payment 
therefor  three  promissory  notes,  together  equal  to  the  price  of  the  goods, 
signed  "Forbes  Woolen  Mills  by  Geo.  E.  Forbes,  Treasurer";  that 
when  they  sold  the  goods  and  took  the  notes,  the}'  understood  from 
their  correspondence  with  the  defendant,  as  well  as  from  information 
gained  from  a  commercial  agency,  that  the  Forbes  Woolen  Mills  were 
a  corporation,  and  made  all  charges  on  their  books  against  them  as  a 
corporation,  and  took  the  notes  from  the  defendant  as  the  notes  of  a 
corporation ;  and  that  after  they  sold  the  goods  and  received  the  notes 
they  became  satisfied  there  was  no  such  corporation  as  the  Fm-bes 
Woolen  Mills ;  and  contended  that  they  were  entitled  to  recover  the 
price  of  the  goods  from  the  defendant  personally. 

The  defendant  contended  that  the  Forbes  Woolen  Mills  was  a  cor- 
poration, and  testified  that  he  purchased  the  goods  as  treasurer  of  the 
Forbes  Woolen  Mills,  but  admitted  that  the}'  had  not  been  paid  for 
except  by  the  notes,  which  themselves  had  not  been  paid  ;  that  in  May, 
1885,  for  the  purpose  of  limiting  his  personal  responsibility,  and  because 
the  tax  laws  of  New  Hampshire  were  more  favorable  to  corporations 
than  the  Massachusetts  laws,  he  went  to  Nashua,  New  Hampshire,  to 
form  a  corporation  for  the  manufacture  of  woollen  goods ;  that  he  em- 
ployed an  attorney  at  law  of  Nashua  to  incorporate  the  company  in  a 
legal  and  proper  manner,  under  the  laws  of  that  State,  and  subse- 
quently paid  him  for  his  services  and  disbursements  in  the  premises ; 
that  he  went  to  Nashua  again,  and  with  the  attorney  and  three  other 
persons,  selected  and  secured  by  the  attorney,  signed  and  executed  an 
agreement  of  association,  which  was  dated  May  6,  1885,  and  was  duly 
recorded  in  the  office  of  the  Secretary  of  State  of  New  Hampshire  on 
May  12,  1885,  and  in  the  office  of  the  clerk  of  the  city  of  Nashua  on. 
May  13,  1885,  and  recited  that  the  subscribers  associated  themselves 
for  the  purpose  of  forming  a  corporation,  to  be  called  the  Forbes 
Woolen  Mills,  the  amount  of  the  capital  stock  to  be  twenty  thousand 
dollars,  divided  into  four  hundred  shares  of  fifty  dollars  ench  ;  and  that 
the  object  of  the  corporation  was  to  manufacture  and  sell  woollen  and 


MONTGOMERY   V.   FORBES.  95 

other  goods,  and  the  places  of  business  were  Nashua  in  New  Hamp- 
shire, and  East  Brook  field  in  Massachusetts. 

The  defendant  further  testified  that,  subsequently  to  the  execution 
of  the  agreement  of  association,  one  or  more  meetings  were  held  by 
the  signers,  at  which  he  was  elected  president  and  treasurer  of  the  cor- 
poration, and  such  other  officers  and  directors  were  elected  as  were 
necessary  under  the  laws  of  New  Hampshire ;  that  the  attorney  had 
been  recommended  to  him  as  a  reputable  and  reliable  man  and  attorney, 
and  he  left  everything  in  his  hands,  and  supposed  he  did  everything 
necessary  and  proper  to  establish  the  corporation  in  a  legal  manner ; 
that  records  of  the  meetings  were  kept  by  the  attorne}",  and  that  there 
was  a  stock-book  and  certificates  of  stock  were  issued  ;  that  all  the 
stock  was  issued  to  the  defendant,  and  that  no  other  person  was  inter- 
ested in  it ;  that  fifty  per  cent  of  the  capital  stock  of  the  corporation 
was  actually  paid  in  by  him  in  cash  and  supplies ;  that  after  the  or- 
ganization of  the  corporation  he  hired,  as  treasurer  of  the  corporation, 
a  mill  in  East  Brookfield  belonging  to  his  mother,  Roxanna  Forbes, 
and  himself,  and  began  the  manufacture  of  woollen  goods ;  that  he  pur- 
chased the  necessary  supplies,  including  those  named  in  the  plaintiffs 
account,  and  placed  them  under  the  direction  of  a  superintendent,  em- 
ployed to  supervise  the  manufacture  of  the  goods ;  that  there  was  no 
manufacturing  done  in  Nashua,  nor  any  other  business  except  the 
holding  of  corporate  meetings,  and  possibly  the  sale  now  and  then  of 
a  bill  of  goods  in  the  ordinary  course  of  business  ;  and  that  the  prin- 
cipal place  of  business  of  the  corporation  was  in  East  Brookfield  ;  that 
he,  as  president  and  treasurer  of  the  corporation,  continued  to  manu- 
facture woollen  goods  for  about  four  months,  and  sent  the  goods  to 
commission  houses  in  New  York  to  be  sold ;  and  that  at  the  end  of 
said  four  months  he  was  unable  to  continue  the  business  and  gave  it 
up,  and  no  further  business  was  done  by  him  or  by  the  corporation. 

The  following  sections  of  chapter  152  of  the  General  Laws  of  New 
Hampshire  of  1878,  were  introduced  in  evidence : 

"  Sect.  1.  Any  five  or  more  persons  of  lawful  age  ma}*,  by  written 
articles  of  agreement,  associate  together,  for  agricultural,  educational, 
or  charitable  purposes,  or  for  carrying  on  any  lawful  business,  except 
banking  and  the  construction  and  maintenance  of  a  railroad  ;  and  when 
such  articles  have  been  executed  and  recorded  in  the  office  of  the  clerk 
of  the  town  in  which  the  principal  business  is  to  be  carried  on,  and  in 
that  of  the  Secretary  of  State,  they  shall  be  a  corporation,  and  such 
corporation,  its  officers  and  stockholders,  shall  have  all  the  rights  and 
powers,  and  be  subject  to  all  the  duties  and  liabilities  of  similar  cor- 
porations, their  officers  and  stockholders,  except  so  far  as  the  same  are 
limited  or  enlarged  b}*  this  chapter. 

"  Sect.  2.  The  object  for  which  the  corporation  is  established,  the 
place  in  which  its  business  is  to  be  carried  on,  and  the  amount  of  capi- 
tal stock  to  be  paid  in,  shall  be  distinctly  set  forth  in  its  articles  of 
agreement." 


96  MONTGOMERY   V.   FORBES. 

Upon  this  evidence,  the  defendant  asked  the  judge  to  rule  that  the 
plaintiffs  were  not  entitled  to  recover,  that  the  account  in  question  had 
been  paid  by  the  notes  of  the  Forbes  Woolen  Mills  as  a  corporation, 
and  that  there  was  no  evidence  to  authorize  the  jury  to  find  for  the 
plaintiffs. 

The  judge  declined  so  to  rule,  and  submitted  the  following  questions 
to  the  jury°:  "1st.  Did  the  Forbes  Woolen  Mills  and  the  members  of 
said  alleged  corporation,  including  said  Forbes,  at  the  time  of  its  at- 
tempted organization,  intend  to  carry  on  its  business  as  a  manufactur- 
ing corporation  (other  than  holding  meetings  of  its  members  and 
officers)  in  whole  or  in  part  in  the  city  of  Nashua,  New  Hampshire? 
2d.  Was  there  an  attempt  in  good  faith  on  the  part  of  the  defendant, 
Forbes,  to  organize  the  corporation  of  the  Forbes  Woolen  Mills? 
3d.  Did  said  Forbes,  at  and  prior  to  the  time  the  goods  in  controversy 
were  ordered,  namely,  at  all  times  after  May  12,  1885,  during  his  deal- 
ings with  the  plaintiff,  believe  that  the  organization  of  said  Forbes 
Woolen  Mills  was  a  valid  corporation?" 

The  jury  answered  the  first  two  questions  in  the  negative,  and  the 
third  in  the  affirmative. 

The  judge,  being  of  the  opinion  that,  upon  the  findings  of  the  jury 
and  the  uncontradicted  evidence  in  the  case,  the  plaintiffs  were  entitled 
to  recover,  directed  the  jury  to  return  a  verdict  for  the  plaintiffs,  and 
reported  the  case  for  the  determination  of  this  court. 

W.  D.  Harding  &  II.  F.  Harris,  for  the  plaintiffs. 

B.  W.  Potter  <&  M.  M.  Taylor,  for  the  defendant. 

C.  ALLEN,  J.     The   apparent  corporation   was   not   a   corporation. 
The  statute  of  New  Hampshire  requires  five  associates,  and  the  articles 
of  agreement  must  be  recorded  in   the  town  in  which  the  principal 
business  is  to  be  carried  on,  and  the  place  in  which  the  business  is  to 
be  carried  on  must  be  distinctly  stated  in  the  articles  ;  otherwise  there 
is  no  corporation.     The  defendant's  pretended  associates  were  asso- 
ciates only  in  name  ;  he  alone  was  interested  in  the  enterprise.     The 
articles  of  agreement  were  recorded  in  Nashua,  and  stated  that  the 
business  was  to  be  carried  on  there ;  but  it  was  not  in  fact  carried  on 
there,  and  was  not  intended  to  be.     The  defendant  took  all  the  shares 
of  the  capital  stock,  and  paid  in  to  himself  as  treasurer  only  fifty  per 
cent  of  the  amount  thereof.     This  is  not  a  case  where  there  has  been  a 
defective  organization  of  a  corporation  which  has  a  legal  existence 
under  a  valid  charter.     Here  there  was  no  corporation.     It  was  just 
the  same  as  if  the  defendant  had  done  nothing  at  all  in  the  way  of 
establishing  a  corporation,  but  had  conducted  his  business  under  the 

I  name  of  the  Forbes  Woolen  Mills,  calling  it  a  corporation.     The  busi- 
f  ness  was  his  personal  business,  which  he  transacted  under  that  name. 

gutter  v.  Hooper,  3  Gray,  334,  341.     Bryant  v.  Eastman,  7  Gush. 

111. 
The  jury  found  that  he  did  not  in  good  faith  attempt  to  organize  the 

corporation,  but  that  he  believed  it  to  be  a  valid  corporation.     His 


INDIANAPOLIS   FURNACE    CO.    V.   HERKIMER.  97 

belief,  in  view  of  the  facts  of  the  case,  is  immaterial.  Under  this  state 
of  things,  the  defendant  bought  goods  of  the  plaintiffs  for  his  own  sole 
benefit,  adopting  the  name  of  the  apparent  corporation,  which  had  no 
real  existence,  and  which  represented  nobody  but  himself.  He  cannot 
escape  responsibility  for  his  purchases  by  the  device  of  putting  such  a 
mere  name  between  himself  and  the  plaintiffs.  The  purchase  was  in 
substance  by  and  for  himself  alone.  The  plaintiffs  might  have  repudi- 
ated the  transaction,  and  maintained  replevin,  if  they  had  learned  the 
facts  in  time.  They  may  also  treat  the  transaction  as  a  sale  to  the 
defendant  personally.  Fay  v.  Noble,  7  Gush.  188,  194.  Kelner  v. 
Baxter,  L.  R.  2  C.  P.  174,  183,  185.  2  Kent  Com.  (13th  ed.)  630. 

Since  the  notes  represented  nothing,  the  plaintiffs  were  at  liberty  to 
treat  them  as  void,  and  recover  on  the  original  contract  for  goods  sold. 
Melledge  \.  Boston  Iron  Co.  5  Gush.  158,  171. 

Verdict  to  stand. 


INDIANAPOLIS   FURNACE  CO.   v.   HERKIMER. 

1873.      46  Indiana,  142.1 

FROM  the  Marion  Circuit  Court. 

Hendricks,  Hord  &  Hendricks  and  Test,  Burns  &  Wright,  for 
appellant. 

J.  E.  McDonald  and  J.  M.  Butler,  for  appellee. 

"\VORDEN,  J.  Complaint  by  the  appellant  against  the  appellee  on  the 
following  paper  subscribed  by  the  defendant. 

"Articles  of  association  of  the  Indianapolis  Furnace  and  Mining 
Company,  organized  for  the  purpose  of  operating  in  the  counties  of 
Marion  and  Clay,  in  the  State  of  Indiana. 

"  Article  First.  The  name  of  said  company  shall  be  the  Indianapolis 
Furnace  and  Mining  Company. 

"Article  Second.  The  capital  stock  of  said  company  shall  be  one 
hundred  thousand  dollars,  and  be  divided  into  shares  of  fifty  dollars 
each,  to  be  paid  for  in  such  amounts  and  at  such  times  as  may  be 
ordered  by  the  board  of  directors. 

"  Article  Third.  The  stockholders  shall  elect  directors,  who  shall 
from  their  number  elect  a  president,  secretary,  and  treasurer,  who  shall 
hold  their  office  for  one  year  and  until  their  successors  are  elected  and 
qualified. 

"  Article  Fourth.  The  board  of  directors  shall  have  the  control  and 
management  of  the  business  of  the  company,  except  as  they  may  ap- 
point some  one  or  more  persons  to  take  charge  of  the  same,  in  which 
case  the  record  of  the  action  of  the  board  in  appointing  them  shall  be 
evidence  of  their  authority  to  act  for  said  company. 

"  Article  Fifth.     The  board  of  directors  shall  have  power  to  make 

1  Only  part  of  the  opinion  is  given.  — ED. 
7 


98  INDIANAPOLIS   FURNACE   CO.   V.   HERKIMEH. 

assessments  on  stock,  collect  the  same,  issue  certificates  therefor,  and 
declare  and  pay  dividends,  which  shall  be  at  least  twice  a  year. 

"Article  Sixth.  All  the  expense  incurred  by  the  company  shall  be 
paid,  and  all  the  indebtedness  of  the  same  shall  likewise  be  discharged 
before  anj'  dividends  shall  be  paid  to  the  stockholders,  unless  the  direc- 
tors shall  direct  otherwise. 

"  Article  Seventh.  We,  the  undersigned,  hereby  subscribe  to  all  the 
foregoing  articles,  provisions,  conditions,  and  stipulations,  and  agree 
to  the  organization  of  a  company  as  therein  stated,  binding  ourselves 
to  take  and  pay  for  the  number  of  shares  of  stock  set  opposite  our 
names  respectively,  and  pay  for  the  same  at  such  times  and  in  such 
amounts  as  the  board  of  directors  may  order  the  same  to  be  paid  for, 
without  relief  from  valuation  or  appraisement  laws. 

"  Subscribers'  Names.  No.  of  Shares. 

"  J.  D.  Herkimer,  by  D.  Root,  100." 

There  were  three  paragraphs  in  the  complaint,  each  counting  upon 
the  same  instrument,  in  each  of  which  it  was  alleged  that  at  the  time  of 
the  execution  of  the  instrument  by  the  defendant,  the  plaintiff  was  a 
duly  organized  corporation ;  but  it  is  not  alleged  in  either  paragraph 
that  after  the  execution  of  the  instrument  any  steps  were  taken  to  per- 
fect the  organization. 

The  defendant  demurred  to  each  paragraph,  assigning  for  cause  the 
want  of  a  statement  of  sufficient  facts,  but  the  demurrers  were  over- 
ruled, and  the  defendant  excepted. 

The  defendant  then  answered, 

1.  By  general  denial. 

2.  Nul  tiel  corporation, 

3.  Nid  tiel  corporation,  setting  out  specially  the  omission  of  the  per- 
formance of  the  acts  required  by  the  statute,  in  order  to  perfect  the 
corporate  organization. 

4.  A  denial  of  the  execution  of  the  instrument,  sworn  to. 

Trial  by  the  court,  finding  and  judgment  for  the  defendant,  the 
plaintiff  having  unsuccessfully  moved  for  a  new  trial. 

We  may  properly  here  notice  another  proposition,  which,  though  not 
perhaps  directly  involved,  is  in  some  measure  connected  with  the 
motion  for  a  new  trial.  We  are  of  opinion  that  a  radical  error  was 
committed  in  overruling  the  demurrers  to  the  several  paragraphs  of  the 
complaint.  The  articles  of  association  signed  by  the  defendant,  includ- 
ing his  subscription  for  stock,  were  verj'  clearly  mere  preliminary 
articles,  contemplating  a  future  perfection  of  the  organization  as  a  cor- 
poration. The  defendant's  contract  did  not  purport  to  be  with  an  exist- 
ing corporation,  but  with  one  to  be  brought  into  existence  in  the  future. 
The  averment  in  the  complaint  that  the  plaintiff  was,  at  the  time  the 
subscription  was  made,  an  existing  corporation,  cannot  change  the 
nature  and  legal  effect  of  the  defendant's  contract.  That  contract 
WM,  in  legal  effect,  that  the  defendant  would  take  and  pay  for  the 


INDIANAPOLIS    FURNACE   CO.    V.    HERKIMER.  99 

/ 

stock  subscribed  for,  in  case  the  organization  should  be  perfected  and 
the  corporation  brought  into  legal  existence,  and  not  otherwise.  Such 
preliminary  subscriptions  seem  to  enure  to  the  benefit  of  the  corporation 
when  formed.  Heaston  v.  The  Cincinnati,  etc.,  Railroad  Co.,  supra. 

But  unless  the  subsequent  steps,  necessary  to  bring  into  existence 
the  corporation,  were  taken,  there  was  no  corporation  to  whose  benefit 
the  contract  could  enure,  and  the  defendant  could  not  be  liable  ;  and  it 
should  have  been  averred  in  the  complaint  that  such  steps  had  been 
taken.  Wert  v.  The  Crawfordsville  and  Alamo  Turnpike  Co.,  19 
Ind.  242  ;  Williams  v.  The  Franklin  Township  Academical  Associa- 
tion, 26  Ind.  310. 

In  such  case,  the  estoppel  growing  out  of  a  contract  with  a  party  as 
an  existing  corporation  does  not  apply.  In  the  case  last  cited,  the 
court  say  : 

"This  rule  of  estoppel  does  not  apply  to  a  suit  brought  on  a  sub- 
scription made  with  a  view  to  the  organization  of  a  corporation,  and  as 
preliminary  thereto,  where  other  acts  are  required  by  the  law  as  a  con- 
dition precedent  to  the  exercise  of  corporate  powers." 

[The  court  then  held,  that,  under  the  statute,  it  was  an  indispensable 
prerequisite  to  the  legal  existence  of  the  corporation  that  a  certificate 
should  be  filed  in  the  office  of  the  Secretary  of  State,  which  was  not 
done  in  the  present  case.] 

Now,  although  the  complaint  was  held  good,  the  pleas  of  nul  tiel 
corporation  put  in  issue  the  existence  of  the  corporation  ;  and  we  think, 
under  the  issues,  the  plaintiff  was  bound  to  prove  such  existence  by 
showing  a  compliance  with  the  statutory  requisites.  The  burthen  was 
on  the  plaintiff,  because  the  defendant  was  not  estopped  b}-  his  con- 
tract to  dispute  the  existence  of  the  corporation,  and  because  the  per- 
fection of  the  organization  was  a  condition  precedent  to  the  plaintiff's 
right  to  recover. 

We  now  proceed  to  consider  the  ground,  upon  which  it  is  claimed  that 
a  new  trial  should  have  been  granted.  There  were  six  reasons  assigned 
for  a  new  trial.  [One  reason  was,  the  refusal  of  the  court  to  hear  the  tes- 
timony of  Horace  W.  Hibbard,  to  the  effect  that  the  defendant  told  him 
that  he  had  five  thousand  dollars  of  the  stock  of  said  company,  and 
offered  to  trade  the  same  to  him.  As  to  this  Worden,  J.,  said] :  The 
evidence  of  Hibbard  was  property  rejected,  because  such  recognition  by 
the  defendant  of  the  existence  of  the  corporation  could  not  estop  him  to 
controvert  the  fact ;  nor  could  it  supply  the  omission  of  an  act  which 
the  law  requires  to  be  performed  before  the  corporation  can  be  called 
into  being. 


1874.       ON   PETITION   FOR   A   REHEARING. 

WORDEN,  C.  J.     The  appellant  has  filed  a  petition  for  a  rehearing  in 
this  case,  claiming,  as  we  understand  the  argument,  that  as  it  was  shown 


100  JOHNSON  V.   COESER. 

by  averment  and  proof,  that  the  defendant's  contract  was  made  with 
an  existing  corporation,  it  should  be  treated  as  such  ;  and  therefore  it 
was  unnecessary  for  the  plaintiff  to  show  that  the  proper  steps  had 
been  taken  to  perfect  the  organization  of  the  corporation. 

In  the  original  opinion,  we  set  out  in  full  the  contract  entered  into 
by  the  defendant.  That  contract  very  clearly  was  not  with  an  existing 
corporation.  It  contemplated  a  future  organization  of  the  corporation, 
to  which  he  was  to  become  liable  on  his  subscription.  To  treat  him  as 
I  having  promised  to  pay  the  amount  of  his  subscription  to  a  corporation 
|  which  then  existed,  would  be  to  make  a  new  contract  for  him  in  place 
of  the  one  which  he  made  for  himself.  There  may  have  been  a  cor- 
poration of  the  same  name,  and  organized  for  the  same  purpose,  in 
existence  at  the  time  the  defendant  made  his  contract ;  but  if  so,  the 
contract  set  out  was  not  made  with  such  existing  corporation.  That 
contract  was  to  pay  a  corporation  to  be  thereafter  organized  and 
brought  into  existence.  The  ground  upon  which  a  party  who  has  con- 
tracted with  a  corportion  as  such  is  estopped  to  den}^  its  existence,  is, 
that  by  his  contract  he  has  recognized  the  existence  of  the  corporation. 

The  contract  in  question,  instead  of  purporting  to  be  made  with  an 
existing  corporation,  utterly  excludes  the  idea  of  its  present  existence, 
but  contemplates  the  future  organization  of  the  corporation,  to  which 
he  was  to  pa}-  the  amount  of  his  subscription. 

The  legal  effect  of  a  written  contract  cannot  be  thus  changed  by 
averment  or  parol  evidence. 

The  petition  for  a  rehearing  is  overruled. 


JOHXSON  v.    CORSER  ET  ALS. 

1885.     34  Minnesota,  355. 

Ox  April  30,  1884,  the  defendants  signed  articles  associating  them- 
selves together  for  the  purpose  of  organizing  as  a  bod\"  corporate  under 
the  name  of  "  The  Sixth  Avenue  North  Extension  and  Improve- 
ment Association."  These  articles  of  association  were  not  filed  for 
record  until  November  21,  1884.  In  the  first  week  in  May,  1884,  by- 
laws were  adopted  and  officers  were  elected.  On  June  16,  1884,  a 
contract  in  writing,  in  the  name  of  the  association,  was  made  with 
Egan  &  Salter  for  grading  and  improving  Sixth  Avenue.  Work  was 
begun  under  this  contract,  and  continued  till  August  5,  1884,  when 
the  plaintiff  and  others,  laborers  engaged  upon  the  work,  struck  and 
refused  to  continue  work,  because  they  had  not  received  their  paj*. 
Two  of  the  defendants,  the  secretary  and  vice-president  of  the  associa- 
tion, visited  the  scene  of  work  and  succeeded  in  inducing  plaintiff  and 
his  fellow-laborers  to  return  to  work,  upon  the  promise,  as  claimed  by 


JOHNSON  V.   COKSER.  101 

plaintiff  but  denied  by  defendants,  that  the  association  would  pay  them. 
Thereafter  the  plaintiff  continued  work  till  November  18,  1884,  and 
the  officers  of  the  association  paid  them  to  October  1,  1884. 

The  plaintiff  brought  this  action  before  a  justice  of  the  peace  for 
Hennepin  count}'  against  the  defendants,  as  partners,  to  recover  for 
his  work  and  services  from  October  1,  1884,  to  November  18,  1884. 
Upon  appeal  to  the  district  court,  the  action  was  tried  before  Young,  J., 
and  a  juiy,  and  plaintiff  had  a  verdict.  Defendants  appeal  from  an 
order  refusing  a  new  trial. 

Rea,  Kitchel  &  Shaw,  and  Scott,  Longbrake  t&  Van  Cleve,  for 
appellants. 

Thomas  Canty  and  Robert  Christensen,  for  respondent. 

DICKINSON,  J.1  In  the  spring  of  1884  the  defendants  entered  into 
articles  of  association,  intending  to  acquire  a  corporate  character,  and 
probably  supposed  that  this  purpose  had  been  accomplished.  No 
incorporation  was,  however,  effected.  The  articles  of  association 
executed  by  the  defendants  declared  the  purpose  of  the  proposed  cor- 
poration to  be  to  secure  the  extension  of  a  certain  street  in  Minneapo- 
lis, and  to  improve  and  beautify  the  same.  They  provided  for  no 
capital  stock,  but  that  the  funds  necessary  for  the  accomplishment  of 
the  contemplated  purpose  should  be  raised  by  subscription  from  the 
members.  The  usual  officers  were  named,  and  a  board  of  five  directors 
provided  for  ;  meetings  of  the  members  were  held  ;  officers  and  a  board 
of  directors  elected ;  by-laws  adopted,  which  provided  for  the  appoint- 
ment of  an  executive  committee,  whose  duty  was  declared  to  be  to 
direct  and  superintend  the  work  and  to  employ  the  necessary  labor ; 
subscriptions  were  made  by  all  of  the  defendants,  excepting  Stark,  for 
the  purposes  of  the  association ;  a  contract  was  made  between  the  asso- 
ciation, by  its  adopted  name,  and  certain  contractors,  (Egan  &  Salter,) 
tor  grading  and  improving  the  street,  and  the  performance  of  the  work 
under  the  contract  was  entered  upon.  The  plaintiff  was  an  employe  of 
Egan  &  Salter,  and  engaged,  with  others,  in  the  work.  During  the 
progress  of  the  work,  the  employes  of  the  contractors,  becoming  dis- 
satisfied with  their  employers,  ceased  to  work.  Then  two  of  the 
defendants,  Mathews  and  Riebeth,  who  were  respectively  vice-president 
and  secretary  of  the  association,  made  an  agreement  with  the  laborers, 
the  precise  nature  of  which  is  in  dispute.  The  evidence  on  the  part  of 
the  plaintiff  is  sufficient  to  support  what  must  have  been  the  conclusion 
of  the  jury,  that  the  agreement  was  that  if  the  men  would  go  on  with 
the  work,  the  association  would  pay  them  ;  while  the  evidence  for  the 
defendants  tended  to  show  that  the  agreement  was  merely  to  pay 
directly  to  the  laborers  the  mone}'  which  should  be  due  to  Egan  and 
Salter  on  their  contract.  By  this  action  the  plaintiff  seeks  to  recover 
against  the  defendants  individually  upon  this  agreement. 

The  attempt  to  become  incorporated  was  ineffectual  to  limit  the  indl 

1  Mitchell,  J.,  did  not  hear  the  argument  and  took  no  part  in  this  case. 


102  JOHNSON  V.   COKSER. 

vidual  liability  of  the  associates ;  and  upon  any  contract  which  they 
may  be  found  to  have  authorized  to  be  made,  or  which  they  may  have 
ratified,  although  in  terms  the  contract  was  made  as  the  contract  of 
the  association  or  assumed  corporation,  the  members  may  be  held  to 
an  individual  responsibility.  Hess  v.  Werts,  4  Serg.  &  R.  356 ;  Pettis 
v.  Atkins,  60  111.  454;  Bigelow  v.  Gregory,  73  111.  197;  Garnett  v. 
Richankon,  35  Ark.  144;  Kaiser  v.  Lawrence  Sav.  JBank,  56  Iowa, 
104;  Abbott  v.  Omaha  Smelting  Co.,  4  Neb.  416;  Field  v.  Cooks, 
1C  La.  Ann.  153  ;  Jessup  v.  Carnegie,  44  N.  Y.  Super.  Ct.  260.  While, 
if  the  other  contracting  party  were  to  charge  the  defendants  in  their 
assumed  corporate  capacit}',  they  might  not  in  some  cases  be  heard  to 
deny  their  corporate  existence,  3'et,  there  being  in  fact  no  such  exist- 
ence, the  plaintiff  may  go  behind  the  assumed  corporate  character,  and 
hold  the  real  principals  to  responsibility  for  the  acts  of  those  whom 
they  may  have  clothed  with  authoi  it}*  to  act  in  behalf  of  the  associa- 
tion. Bigelow  v.  Gregory,  supra ;  Kaiser  v.  Lawrence  Sav.  .Bank, 
supra  ;  Jessup  v.  Carnegie,  supra  ;  Hurt  v.  Salisbury,  55  Mo.  310. 

We  deem  the  evidence  to  have  been  sufficient  to  sustain  a  conclusion 
on  the  part  of  the  jury  that  all  of  the  defendants,  the  members  of  the 
association,  authorized  the  prosecution  of  the  contemplated  work,  and 
knew  that  it  was  actually  being  carried  forward  under  the  direction  of 
the  appointed  agents  of  the  association  ;  that  the  executive  committee 
was  authorized  b}-  the  association  to  prosecute  the  work  as  its  agent, 
and  for  that  purpose  to  emplo}'  laborers;  that  the  alleged  contract 
upon  which  this  action  is  brought  was  made  by  two  members  of  the 
committee  in  behalf  of  the  association ;  and  that  the  whole  committee, 
having  knowledge  of  that  fact,  ratified  the  agreement,  making  pay- 
ments from  time  to  time  in  accordance  with  it.  Only  as  to  two  of 
these  particulars  does  the  sufficiency  of  the  evidence  seem  questionable, 
and  only  to  that  evidence  shall  we  particularly  refer. 

It  is  in  evidence  that  the  defendant  Stark  did  not  subscribe  or  pay 
anything  for  the  purpose  of  the  association,  and,  after  executing  the 
articles  of  association,  took  no  active  part  in  the  enterprise.  He,  how- 
ever, subscribed  to  the  articles  of  association,  the  declared  purpose  of 
which  was  the  prosecution  of  this  work.  He  was  present  on  the  occa- 
sion when  the  agreement  sued  on  was  made,  and,  as  the  evidence 
tends  to  show,  heard  the  agreement  then  made,  —  that  the  association 
would  pa}'  the  laborers,  —  although,  according  to  his  own  testimony, 
the  agreement  was  not  such  as  is  shown  on  the  part  of  the  plaintiff. 
We  think  this  sufficient  to  warrant  the  conclusion  that  Stark  was  aware 
that  the  work  was  being  carried  on  in  behalf  of  the  association  with 
which  he  had  united,  and  that  Mathews  and  Riebcth  in  his  presence 
assumed  to  make  this  contract  as  the  contract  of  the  association.  If 
the  fact  were  so,  the  mere  silence  of  Stark  might  be  deemed  to  signify 
his  acquiescence. 

It  is  not  entirely  clear  from  the  evidence  whether  the  agreement 
made  bjr  Mathews  and  Riebeth  was  communicated  to  all  the  other 


JOHNSON   V.   COESER.  103 

members  of  the  executive  committee.  The  b}T-laws  adopted  by  the 
association  declared  that  there  should  be  an  executive  committee  of 
five,  of  which  the  president,  vice-president,  and  secretaiy  should  be 
ex  officio  members,  and  of  which  three  members  should  constitute  a 
quorum.  But  it  is  testified  to  that  Jive  members  of  the  executive  com- 
mittee were  elected.  We  are  left  in  doubt  whether  the  association  in 
fact  named  three  or  five  of  its  members,  in  addition  to  the  ex  officio 
members,  as  its  executive  committee.  But  this  is  not  very  material. 
It  is  distinctly  testified  to  that  the  agreement  made  by  two  of  the  ex 
officio  members  of  the  committee  was  communicated  to  three  of  the 
other  members  of  the  committee,  one  of  whom  was  the  president,  and 
that  they  assented  to  it.  It  further  appears  that  other  members  named 
as  members  of  that  committee  were  present  when  computations  were 
made  of  the  amounts  to  be  paid  to  the  laborers ;  that  meetings  of  the 
committee  were  held,  at  which  they  took  action  relative  to  the  work 
being  carried  forward  under  the  agreement  made  by  Mathews  and  Rie- 
beth ;  and  that  during  a  period  of  several  weeks  the  laborers  were  paid 
by  direction  of  the  committee.  While  this  evidence  is  not  the  most 
satisfactoiT,  it  is  still  such  as  to  justify  the  conclusion  that  the  agree- 
ment, as  testified  to  on  the  part  of  the  plaintiffs,  was  communicated  to/"' 
the  executive  committee  as  a  whole,  and  was  ratified  and  adopted  by 
them.  Nothing  further  was  necessary  to  charge  the  defendants  with 
liability. 

The  plaintiff  asserts,  as  a  rule  of  law  applicable  to  the  case,  that, 
from  the  mere  failure  to  perfect  the  contemplated  incorporation,  the 
association,  after  proceeding  to  carry  on  the  proposed  enterprise, 
became  a  partnership,  and  the  members  copartners,  with  authority 
(implied  from  their  relations)  in  each  member  to  bind  all  of  the  associ- 
ates by  any  act  within  the  scope  of  the  business  carried  on  by  the 
association.  We  cannot  sanction  the  application  to  this  case  of  the 
doctrine  of  implied  agency  as  it  is  recognized  in  ordinary  business 
copartnerships.  If  it  be  conceded  that  the  principle  upon  which  the 
plaintiff  relies  exists  and  is  applicablein  cases  where  the  business  con~- 
jemplated_and_carried  on  by  the  association,  and  jhj^urposes  for 
whichjt  is  prosecuted,  are  such  a¥  involve  "the  essential  elements  of  a 
partnership  nndortajdn^,  or  where  the  articles  of  jassociation  contain 
all  that  is  psspnf.ial  to  f-reate  a  partnership,  r^still  the  principle  is  not 
appliqablejo^this  case,  in  whioh  thnsft  conditions  do  not  exist.  So  far 
as  appears,  the  business  undertaken  and  carried  on  by  the  defendants 
was  not  of  a  partnership  character,  nor  the  purposes  such  as  to  suggest 
the  relation  of  copartners  between  those  engaged  in  it.  It  was  only 
the  grading  of  a  public  street  b}-  the  co-operation  of  these  several  per- 
sons, and  that,  so  far  as  appears,  for  no  purpose  of  gain  or  profit. 
This  would  not  have  constituted  those  uniting  and  contributing  for 
such  a  purpose  copartners ;  nor  can  such  a  result  have  been  accom- 
plished by  the  further  fact  that  an  incorporation  was  contemplated,  and 
attempted  to  be  perfected,  but  failed.  We  deem  the  liability  _QfJbh,G- 


104  SNIDER'S  SONS  co.  v.  TROY. 

defendants  to  rest  upon  the  ordinary  principles  of  contract  and  agency, 
and  not  upon  the. ground  oj^anjexi.stiug- copartnership^ 
" "The  articles  of  association  executed  by  the  defendants  were  properly 
received  in  evidence.     This  evidence  went  to  show  the  co-operation  of 
the  defendants  in  the  enterprise  in  carrying  on  which  the  contract 
sued  on  was  made.     The  same  is  true  of  the  proof  of  contributions  of 
money  from  the  defendants. 
Order  altirmed. 


SNIDER'S  SONS  CO.  v.  TROY. 

1890.     91  Alabama,  224.1 

ACTION  for  goods  sold  by  plaintiffs,  in  1888,  to,  or  on  the  order  of, 
The  Dispatch  Publishing  Co.  The  complaint  alleged  that  said  Com- 
pany was  at  the  time  a  partnership,  and  that  defendant  was  one  of  the 
partners  ;  that  the  Company  claimed  to  be  a  corporation,  but  was  never 
in  fact  incorporated.  Plea,  setting  out  certain  steps  taken,  in  1885,  by 
defendant  and  other  persons  to  organize  a  corporation  by  the  above 
name  ;  also  alleging  that  the  debt  now  sued  for  was  contracted  by  said 
Company  as  such  corporation,  and  not  otherwise ;  and  that  plaintiff 
dealt  with  it  as  a  corporation,  and  not  as  a  partnership  or  association 
of  individuals.  A  demurrer  to  the  plea  was  overruled. 

E.  P.  Morrissett,  for  appellant. 

Tompkins  <b  Troy,  contra. 

CLOPTOX,  J.  A  corporation  de  facto  exists  when,  from  irregularity 
or  defect  in  the  organization  or  constitution,  or  from  some  omission  to 
comply  with  the  conditions  precedent,  a  corporation  de  jure  is  not 
created,  but  there  has  been  a  colorable  compliance  with  the  require- 
ments of  some  law  under  which  an  association  might  be  lawfully  incor- 
porated for  the  purposes  and  with  the  powers  assumed,  and  a  user  of 
the  rights  claimed  to  be  conferred  b}"  the  law,  when  there  is  an  organi- 
zation with  color  of  law,  and  the  exercise  of  corporate  franchises  and 
functions.  M.  E.  Church  v.  Pickett,  19  N.  Y.  482;  Stout  v.  Zulick, 
48  X.  J.  Law,  599,  7  Atl.  Rep.  362. 

The  enabling  law  under  which  a  corporation  for  the  purposes  and 
objects  of  the  Dispatch  Publishing  Company,  and  with  the  powers 
assumed,  might  have  been  lawfully  created  at  that  time,  is  contained 
in  sections  1803-1812  of  the  Code  of  1876,  and  the  amemlatoiy  acts, 
which  authorize  and  provide  for  the  incorporation  of  two  or  more  per- 
sons desirous  of  forming  a  private  corporation  for  the  purpose  of  cany- 
ing  on  any  industrial  or  other  lawful  business  not  otherwise  specially 
provided  for  by  law.  Acts  1882-83,  p.  40.  The  plea  avers  that  de- 
fendant and  two  other  named  persons  filed,  September  2,  1885,  with 

1  Statement  abridged.     Arguments  omitted.  —  ED. 


SNIDEK'S  SONS  co.  v.  TROY.  105 

the  judge  of  probate  of  Montgomery  county,  a  written  declaration, 
signed  by  themselves,  setting;  forth  substantially  the  maiteis_-reaiiired 
by  the  statute,  except  the  residences  of  the  persons,  that  they  organ- 
ized by  the  election  of  three  directors,  and  commenced  and  continued 
to  do  business  in  a  corporate  capacity,  and  were  so  doing  business 
when  the  debt  sued  for  was  contracted.  If  the  averments  of  the  plea 
be  true,  the  truth  of  which  is  admitted  by  the  demurrer,  the  Dispatch 
Publishing  Company  was  an  association  having  capital  stock  divided 
into  shares,  organized  by  the  election  of  officers,  and  transacting  busi- 
ness, and  exercising  franchises,  functions,  and  powers,  after  an  at- 
tempted incorporation,  as  if  it  were  a  corporation  dejure,  a  colorable 
compliance  with  the  requirements  of  an  existing  and  enabling  law,  and 
user  of  the  rights  claimed  to  be  conferred  thereby,  the  essential  ele- 
ments of  a  corporation  de  facto.  Central,  A.  &  M.  Ass'n  v.  Alabama 
G.  L.  Ins.  Co.,  70  Ala.  120. 

Appellant  seeks  by  the  action  to  hold  defendant,  who  was  a  member, 
liable  as  a  partner  for  paper  and  other  supplies  sold  to  the  Dispatch 
Publishing  Company.  Whether  the  shareholders  in  a  corporation  de 
facto  are  individually  liable  for  the  corporate  debts,  in  the  absence  of 
fraud  or  a  statute,  is  a  question  as  to  which  the  authorities  are  in  direct 
antagonism.  In  Cook,  Stocks,  §  233,  the  doctrine  asserted  is:  "A 
corporate  creditor,  seeking  to  enforce  the  payment  of  his  debt,  may 
ignore  the  existence  of  the  corporation,  and  may  proceed  against  the 
supposed  stockholders  as  partners,  by  proving  that  the  prescribed 
method  of  becoming  incorporated  was  not  complied  with  by  the  corn- 
pan}"  in  question."  The  leading  cases  supporting  this  doctrine  are 
Bigelow  v.  Gregory,  73  111.  197  ;  Abbott  v.  Smelting  Co.,  4  Neb.  416  ; 
Garnett  v.  Richardson,  35  Ark.  144  ;  Ferris  v.  Thaw,  72  Mo.  446  ; 
Ridenour  v.  Mayo,  40  Ohio  St.  9  ;  Coleman  v.  Coleman,  78  Ind.  344. 
We  have  omitted  reference  to  a  few  cases,  sometimes  cited,  for  the 
reason,  that  either  the  question  of  liability  as  partners  was  not  before 
the  court,  as  in  Blanchard  v.  Kaull,  44  Cal.  440 ;  or  the  debt  was 
contracted  before  an}-  steps  were  taken,  other  than  the  mere  filing  of  a 
certificate,  towards  organization,  as  in  Bergen  v.  Fishing  Co.,  (N.  J.) 
3  Atl.  Rep.  404 ;  or  it  was  contracted  after  the  expiration  of  the  char- 
ter by  its  own  limitation  without  reorganization,  as  in  Bank  v.  Landon, 
45  N.  Y.  410.  In  the  case  last  cited,  the  shareholders  entered  into  a 
special  agreement,  which  by  its  terms  created  a  partnership  as  to  third 
persons.  In  2  Mor.  Priv.  Corp.  §  748,  the  doctrine  is  stated  as  follows  : 
"•  If  an  association  assumes  to  enter  into  a  contract  in  a  corporate  ' 
capacity,  and  the  part}'  dealing  with  the  association  contracts  with  it 
as  if  it  were  a  corporation,  the  individual  members  cannot  be  charged 
as  parties  to  the  contract,  either  severally  or  jointly  or  as  partners.'5 
The  following  cases  maintain  the  doctrine  that  the  members  of  a  cor- 
poration de  facto  cannot  be  held  liable  as  partners  for  the  corporate  ( 
debts.  Fay  v.  Noble,  7  Cush.  188;  Bank  v.  Almy,  117  Mass.  476; 
Stout  v.  Zulick,  48  N.  J.  Law,  599,  7  Atl.  Rep.  362 ;  Bank  v.  Padgett, 


106  SNIDER'S  SONS  co.  v.  TROY. 

69  Ga.  164 ;  Bank  v.  Stone,  38  Mich,  779 ;  Humphrej's  v.  MoonejT,  5 
Colo.  282 ;  Bank  v.  Walker,  66  N.  Y.  424 ;  Coal  Co.  v.  Maxwell,  22 
Fed.  Rep.  197 ;  Whitney  v.  Wyman,  101  U.  S.  392. 

The  plea  and  demurrer  do  not  raise  the  question  of  the  liability  of 
the  supposed  stockholders,  as  partners,  where  there  has  been  no  inten- 
tion or  attempt  to  incorporate,  where  they  are  acting  as  a  body  cor- 
porate without  even  color  of  legislative  authority,  by  sheer  usurpation. 
The  plea  avers  that  the  debt  sued  for  was  contracted  by  the  Dispatch 
Publishing  Company,  which  is  alleged  to  have  been  a  de  facto  corpora- 
tion, and  that  plaintiff  sold  the  goods  to,  and  contracted  with,  the  corn- 
pan}1  as  a  corporation,  knowing  that  it  was  doing  business  as  such. 
The  question  before  us,  and  the  onl}'  question  we  propose  to  decide,  is 
whether,  there  being  no  fraudjillcged,  nor  ^statute  making  the  stock- 
holders individually  liable,  a  creditor,  who  Ltag_dealt  with  a  de  facto 
corporation  as  a  corporation,  who  has  entered  into  contractual  relations 
with  it  in  its  corporate  name  and  capacity,  can  disregard  the  existence 
of  the  corporation,  andf  electing  to  treat  it  as  a  partnership,  enforce  the 
collection  of  his  debt  fmm  t.hp  stockholders  individually?  The  conflict- 
ing authorities  afford  aid  in  the  solution  of  this  question,  only  so  far  as 
their  opinions  may  be  in  accord  with  settled  principles  and  sustained 
by  reason.  Though  it  is  an  undecided  question  in  this  state,  principles 
have  been  well  settled  which  materially  bear  upon  the  inquhy,  and 
mark  the  way  to  a  correct  conclusion. 

Corporations  may  exist  either  de  jure  or  de  facto.  If  of  the  latter 
class,  they  are  under  the  protection  of  the  same  law,  and  governed  by 
the  same  legal  principles,  as  those  of  the  former,  so  long  as  the  state 
acquiesces  in  their  existence  and  exercise  of  corporate  functions.  A 
private  citizen,  whose  rights  are  not  invaded,  and  who  has  no  cause  of 
complaint,  has  no  right  to  inquire  collaterally  into  the  legality  of  its 
existence.  This  can  only  be  done  in  a  direct  proceeding  on  the  part 
of  the  state,  from  whom  is  derived  the  right  to  exist  as  a  corporation, 
and  whose  authorit}'  is  usurped.  This  principle  was  clearty  and  em- 
phatically declared  in  Lehman  v.  Warner,  61  Ala.  455,  in  the  following 
language:  "The  corporation  must  of  necessity  be  presumed  to  be 
rightfully  in  possession  of  the  franchise,  and  rightfully  to  exercise  the 
power  which  the  legislative  grant  confers.  Individual  right  is  not  in- 
vaded, if  the  negative  is  true  in  fact,  and  there  is  usurpation.  It  is 
the  state  —  the  sovereign  —  whose  rights  are  invaded  and  whose  au- 
thority is  usurped.  The  individual  could  not  create  the  corporation, 
could  not  grant,  define,  limit  its  powers,  and  no  grant  of  these  b}-  the 
sovereign  can  lessen  his  rights.  There  can  consequently  be  no  cause 
of  complaint  by  the  citizen,  and  no  right  to  inquire  whether  corporate 
existence  is  rightful  de  jure,  or  merely  colorable."  Taylor,  Corp. 
§  145  ;  4  Amer.  &  Eng.  Enc.  Law,  198.  The  creditor  cannot  proceed 
against  the  stockholders  as  partners,  without  proving  non-compliance 
with  prescribed  conditions  precedent,  thus  inquiring  collaterally,  not 
into  the  fact,  but  the  legality,  of  its  existence. 


SNIDER'S  SONS  co.  v.  TBOY.  107 

It  is  also  an  established  rule  of  general  application,  that  a  party  who 
contracts  with  a  corporation,  exercising  corporate  powers  and  perform- 
ing corporate  functions,  existing  as  a  de  facto  corporation,  in  its  cor- 
porate name  and  capacity,  will  not  be  permitted  in  a  suit  on  the  contract 
to  deny  and  disprove  the  rightfulness  of  its  existence.  4  Amer.  & 
Eng.  Enc.  Law,  198.  In  Swartwout  v.  Railroad  Co.,  24  Mich.  390, 
COOLEY,  J.,  declares  the  rule  as  follows :  "  Where  there  is  thus  a  cor- 
poration de  facto,  with  no  want  of  legislative  power  to  its  due  and  legal 
existence,  when  it  is  proceeding  in  the  performance  of  corporate  func- 
tions, and  the  public  are  dealing  with  it  on  the  supposition  that  it  is 
what  it  professes  to  be,  and  the  questions  are  only  whether  there  has 
been  exact  regularity  and  strict  compliance  with  the  provisions  of  the 
law  relating  to  corporations,  it  is  plainly  a  dictate  alike  of  justice  and 
public  policy,  that,  in  controversies  between  the  de  facto  corporation 
and  those  who  have  entered  into  contract  relations  with  it,  as  corpo- 
rators or  otherwise,  such  questions  should  not  be  suffered  to  be  raised." 

The  general  rule  is  thus  stated  by  BRICKELL,  C.  J. :  "  Whoever 
contracts  with  a  corporation  in  the  use  of  corporate  powers  and  fran- 
chises, and  within  the  scope  of  such  powers,  is  estopped  from  denying 
the  existence  of  the  corporation,  or  inquiring  into  the  regularity  of  the 
corporate  organization,  when  an  enforcement  of  the  contract,  or  of 
rights  arising  under  it,  is  sought."  Cahall  v.  Association,  61  Ala.  232  ; 
Central  A.  &  M.  Ass'n  v.  Alabama  G.  L.  Ins.  Co.,  70  Ala.  120  ;  Schloss 
v.  Trade  Co.,  87  Ala.  411,  6  South.  Rep.  360. 

It  is  conceded  that  the  rule  has  been  invoked  and  applied  most  fre- 
quently in  suits  against  the  stockholders  or  corporation,  or  persons 
who  have  contracted  with  it,  where  the  stockholder,  or  corporation,  or 
person,  is  seeking  to  avoid  a  liability  by  denying  the  legality  of  the 
corporate  organization.  But  wh}-  should  it  not  be  applicable  in  other 
cases ?  Why  should  the  stockholder  be  estopped  in  a  suit  jjy_a  creditor 
of  an  insolvent  corporation^  to  require  paj'ment  of  hisunpaid  subscrip- 
tion, and  the^creditor  allowed~to  ignore  the  existenctTof  the  corporation, 
and  proceed  against  the  stockholder  asa  partner? Why  should  not 
the  estoppel  be  mutual?  Ta3*lor,  in  his  work  on  Corporations,  §  148, 
having  stated  the  general  rule,  that  a  corporation,  when  sued  on  its 
contract,  and  the  person  who  contracted  with  it,  when  sued  on  his  con- 
tract, is  estopped  to  den}*  its  legal  incorporation,  adds  :  ';  Furthermore, 
persons  who  have  contracted  with  a  corporation  as  such,  and  have 
acquired  claims  against  it,  are  estopped  from  denying  its  corporate 
existence  for  the  purpose  of  holding  its  shareholders  liable  as  part- 
ners." And  the  same  rule  was  applied  in  several  of  the  cases  cited 
above,  in  which  a  corporate  creditor  was  seeking  to  hold  the  stockholder 
liable  as  a  partner  for  a  corporate  debt.  The  abrogation  of  the  fore- 
going well-established  rule  is  the  logical  sequence  of  maintaining  a  suit 
by  a  creditor  of  a  de  facto  corporation,  charging  the  stockholders  as 
partners. 

Another  consideration.     Section  8,  art.  14,  of  the  constitution,  de- 


108  SNIDER'S  SONS  co.  v.  TROY. 

clares :  "  In  no  case  shall  any  stockholder  be  individually  liable  other- 
wise than  for  the  unpaid  stock  owned  b}-  him  or  her."  Exemption  from 
liability  other  than  for  unpaid  stock  is  the  declared  policy  of  the  state. 
It  cannot  be  imposed  by  legislation  or  by  the  judgment  of  a  court.  In 
view  of  the  constitutional  provision  it  is  manifest  that  the  shareholders 
of  the  Dispatch  Publishing  Company  intended,  by  the  attempt  to  incor- 
porate, to  avoid  individual  liability  for  the  debts  contracted  by  the  cor- 
poration. When  a  party  deals  and  contracts  with  a  corporation  as_ 
corporators,  exemption  from  individual ^liability  enters,  as.  an  element 
of  the  contract.  It  is  true  that  the  liability  of  persons  associated  in  an 
enterprise  or  adventure  is  not  determinable  b}T  the  name  they  may 
assume,  but  by  the  legal  consequences  of  their  acts.  A  partnership 
may  arise  as  to  third  persons  by  mere  operation  of  law,  and  contrary 
to  the  intention  of  the  parties,  but,  to  have  the  effect,  the  elements 
essential  to  constitute  a  partnership  as  to  third  persons  must  exist.  A 
corporation  de  facto  has  an  independent  status,  recognized  by  the  law 
as  distinct  from  that  of  its  members.  A  partnership  is  not  the  neces- 
sary legal  consequence  of  an  abortive  attempt  at  incorporation.  As 
said  in  Fay  v.  Noble,  supra:  "  Surely,  it  cannot  be,  in  the  absence  of 
all  fraudulent  intent,  that  such  a  legal  result  follows  as  to  fasten  on 
parties  involuntarily,  for  such  a  cause,  the  enlarged  liabilitj'  of  copart- 
ners, a  liability  neither  contemplated  nor  assented  to  by  them.  The 
statement  of  the  proposition  carries  with  it  a  sufficient  refutation." 

Maintenance  of  such  suit  involves  judicial  nullification  of  franchises 
and  powers  enjoyed  and  exercised  b}-  a  de  facto  corporation  as  a  dis- 
tinct entity  recognized  by  the  law,  acquiesced  in  by  the  state ;  defeats 
the  corporate  character  of  the  contract ;  changes  the  relation  from  that 
of  stockholders  to  that  of  partners ;  substitutes  other  and  new  parties 
to  the  contract ;  effects  the  imposition  of  an  enlarged  liability,  which 
they  did  not  assume,  but  intended  to  avoid,  so  understood  by  the 
creditor  when  he  contracted  the  debt  with  the  corporation  as  such. 
The  contract  is  valid  and  binding  on  the  corporation,  which  the  cred- 
itor trusted.  No  injustice  is  done  him,  for  all  his  rights  and  remedies 
are  preserved  by  the  principle,  that  the  corporation  and  the  share- 
holder are  estopped  from  denying  its  legal  existence,  as  against  him. 
It  will  not  answer  to  sa}r  that  he  is  not  repudiating,  but  enforcing,  the 
contract.  He  repudiates  the  party,  the  corporation,  with  which  he 
made  the  contract,  and  seeks  its  enforcement  against  parties  who  never 
entered  into  contractual  relation  with  him.  The  doctrine  that  a  cred- 
itor who  has  dealt  with  a  de  facto  corporation  in  its  corporate  capacity 
cannot  charge  the  stockholders  as  partners  with  the  corporate  debt, 
there  being  no  fraudulent  intent  alleged  and  proved,  seems  to  us  to  be 
sustained  by  the  weight  of  authority,  maintained  by  stronger  reasoning 
consistent  with  well-settled  principles,  and  in  harmony  with  the  policy 
of  the  state.  Affirmed. 


RUTHERFORD   V.   HILL.  109 


RUTHERFORD  v.  HILL. 

1892.     22  Oregon,  218. 

MULT:NTOMAH  count}' :  E.  D.  SHATTDCK,  Judge. 

Defendants  appeal.     Reversed. 

The  defendants  are  sued  as  partners  under  the  name  and  style  of  the 
Himes  Printing  Company.  The  complaint  does  not  anywhere  allege 
that  the  defendants  entered  into  an  agreement  of  co-partnership,  but  in 
lieu  thereof  the  following  facts  are  alleged  :  "That  the  defendants,  on 
or  about  the  fifth  da)*  of  September,  1890,  executed,  acknowledged, 
and  filed  in  the  office  of  the  clerk  of  the  county  court  of  Multnomah 
count}-,  and  in  the  office  of  the  secretary  of  state  at  Salem,  Oregon, 
certain  articles  of  incorporation  as  the  Himes  Printing  Company  ;  that 
the_defendants,  in  violation  of  the  laws  for  the  formation  of  corrjqra- 
tions  subsisting  in  ihe  slatcTof  Oregon,  negligently  failed  to  providc_a 
stock-book  and  to  secure  stock  subscriptions  to_  said  corporation  ;  that 
in  spite  of  their  said  violation  of  the  law,  the  defendants  undertook  to 
earn-  on  the  business  provided  for  in  said  articles  of  incorporation, 
appointed  one  George  H.  Himes  superintendent  of  their  said  business, 
and  authorized  him  and  the  defendant  Sherman  Martin  to  represent 
them  in  all  the  transactions  of  said  business  ;  that  said  business  was 
carried  on  under  the  firm  name  and  title  of  the  Himes  Printing  Com- 
pany ;  that  between  Ma)'  1,  and  September  1,  1891,  the  plaintiff,  at 
the  instance  and  request  of  the  defendants,  through  their  agents,  the 
aforesaid  Himes  and  the  defendant  Martin,  performed  certain  labor 
and  services  for  the  defendants,  of  the  reasonable  and  agreed  value  of 
two  hundred  and  thirteen  dollars  and  fourteen  cents,  which  sum  the 
defendants  promised  to  pay  ;  that  the  plaintiffs  performed  the  aforesaid 
work,  relying  on  the  credit  and  representations  of  the  defendants  for 
their  payment." 

Earhart  and  Hill  answered  separately,  and  each  of  them  denied 
every  material  allegation  of  the  complaint,  except  they  did  not  deny 
executing  and  filing  the  articles  of  'incorporation  of  the  Himes  Print- 
ing Company. 

The  jury  returned  a  verdict  against  the  defendants  Earhart  and  Hill 
for  the  amount  claimed,  and  a  judgment  was  entered  thereon,  from 
which  this  appeal  was  taken. 

George  H.  Durham,  and  J.  F.  Watson,  for  Appellants. 

Wallace  M'Cammant,  for  Respondents. 

STRAHAN,  C.  J. — At  the  conclusion  of  the  evidence,  tlie  defendants 
Hill  and  Earhart  asked  the  court  to  instruct  the  jury  as  follows : 
"  1.  The  execution  and  filing  of  the  articles  of  ^incorporation  of  the 
Himes  Printing  Company  by  said  Hill  and  Earhart,  in  connection  with 
the  defendant  Sherman  Martin,  would  not  itself  make  them  partners 
with  Martin,  or  render  them  liable  in  this  action.  2.  Said  defendants 


110  RUTHERFORD   V.   HILL. 

Hill  and  Earhart  cannot  be  charged  in  this  action  unless  it  has  been 
shown  by  a  preponderance  of  the  evidence  that  they  had  notice  of 
their  being  held  out  as  such  partners,  and  plaintiffs  also  had  notice 
thereof  before  or  at  the  time  they  performed  the  labor  and  services 
alleged  in  the  complaint  and  performed  the  same  on  the  faith  thereof. 
3.  The  plaintiffs  cannot  recover  in  this  action  against  Hill  and  Earhart, 
unless  it  has  been  proved  b}*  a  preponderance  of  the  evidence  that  said 
Hill  and  Earhart  were  partners  in  said  printing  company  at  the  time 
the  contract  for  said  labor  and  services  was  entered  into,  or  at  the  time 
the  same  were  performed,  or  at  the  time  the  contract  was  entered  into, 
or  said  labor  and  services  performed,  undertook  to  carry  on  said  busi- 
ness of  said  company,  or  were  interested  as  partners  or  appointed  or 
participated  in  the  appointment  of  George  H.  Himes  as  superintendent 
of  said  business,  or  authorized  him  or  said  Martin  to  represent  them 
in  the  transaction  of  said  business,  or  requested  through  said  Himes  or 
Martin  the  plaintiffs  to  perform  said  labor  and  service."  No.  4  was  in 
effect  a  direction  to  the  jury  to  return  a  verdict  for  the  defendants  Hill 
and  Earhart.  The  defendants  excepted  to  the  rulings  of  the  court  in 
refusing  to  give  each  of  the  foregoing  instructions. 

The  court  then  instructed  the  jury  as  follows  :  "  I  cannot  agree  with 
3*ou,  Mr.  Durham  and  Judge  Watson,  that  there  ma}'  not  be  some 
other  reasons  wh}*  parties  should  not  be  bound  than  such  as  usually 
arise  from  an  estoppel.  Since  this  case  has  been  going  on,  it  has  oc- 
curred to  me  whether  or  not  this  may  not  furnish  a  class  of  itself  for 
pronouncing  a  man  to  be  a  partner.  As  a  general  rule,  the  doctrine  of 
estoppel  has  got  to  be  made  out  according  to  the  authorities  you  have 
read  ;  but  I  am  inclined  to  the  opinion  that  the  mere  act  of  filing  arti- 
cles is  itself  a  holding  out  and  notice  to  the  world  that  they  are  associated 
in  the  business  that  is  carried  on  under  the  name.  I  do  not  feel  very 
certain  about  it,  but  my  best  conception  of  this  matter  is  that  it  ought 
to  be  considered  the  rule."  An  exception  to  this  instruction  was  duly 
noted.  The  court  also  gave  the  following  instruction  :  "  If  you  find 
from  the  evidence  in  this  case  that  these  two  defendants  and  Sherman 
Martin  filed  articles  of  incorporation  for  the  purpose  of  carrying  on 
the  printing  business  under  the  name  of  the  Himes  Printing  Company, 
and  that  thereafter  one  of  these  men,  to-wit,  Sherman  Martin,  took  up 
the  business  contemplated  by  this  corporation,  and  carried  it  on  under 
that  name,  and  incurred  liabilities,  then  all  these  incorporators  that 
signed  the  articles  are  liable,  and  your  verdict  should  be  for  the  plain- 
tiffs for  the  amount  claimed,  provided  you  further  find  that,  before  they 
performed  the  labor  and  rendered  the  services,  they  ascertained  the 
fact  of  these  articles  being  filed,  and  acted  on  the  faith  of  the  associa- 
tion of  these  defendants  with  Sherman  Martin,  and  that  they  were 
induced  thereby  to  perform  the  labor  and  render  the  services."  An 
exception  was  also  taken  to  this  instruction. 

There  was  no  evidence  whatever  before  the  jury  that  these  defend- 
ants had  anything  to  do  with  the  business  of  the  Himes  Printing  Com- 


RUTHERFORD   V.   HILL.  Ill 

pany,  or  in  any  way  authorized  the  same,  except  to  sign  the  articles  of 
incorporation.  They  appointed  no  agents  and  emplo3'ed  no  laborers, 
purchased  no  material,  nor  did  they  have  &ny  knowledge  that  any  busi- 
ness was  conducted  under  that  name,  except  the  company  did  some 
printing  for  the  defendant  Hill ;  and  when  a  bill  was  presented  to  him 
for  the  same  it  bad  at  the  top,  printed  in  bold  letters,  "The  Himes 
Printing  Compan}*,  incorporated ;  Geo.  H.  Himes,  Superintendent ; 
Sherman  Martin,  Manager."  There  was  no  evidence  before  the  jury 
that  the  plaintiffs  had  any  actual  knowledge  of  the  filing  of  the  articles 
of  incorporation  at  the  time  they  performed  the  services  sued  for. 

The  sole  question,  therefore,  seems  to  be  whether  or  not,  where 
three  or  more  persons  sign,  acknowledge,  and  file  articles  of  incorpo- 
ration under  the  Jaws  of  this  state,  and  do  nothing  further  towards 
effecting  an  organization  or  carrying  on  the  proposed  business,  and  one 
of  them  assumes  to  do  business  under  the  proposed  corporate  name 
and  incurs  liabilities,  the  other  persons  who  sign  said  articles  are  liable. 
Appellants  maintain  that  in  such  case  there  is  no  liability  on  the  part 
of  those  who  do  not  participate  in  the  business  either  directly  or  in- 
directly, while  the  respondents  seek  to  maintain  the  reverse  of  this 
proposition ;  and  this  contention  presents  the  only  question  we  need 
consider  on  this  appeal. 

The  respondent  contends  that  the  executing  and  filing  of  the  articles 
of  incorporation  and  the  assumption  of  the  corporate  name  by  one  of 
the  parties  under  which  he  does  business,  create  a  partnership  between 
all  the  persons  signing  said  articles  ;  and  to  sustain  this  view  he  relies 
upon  these  authorities  :  Whipple  v.  Parker,  29  Mich.  369  ;  Jessup  v. 
Carnegie,  44  N.  Y.  Sup.  Ct.  260 ;  Coleman  v.  Coleman,  78  Ind.  344 ; 
Pettis  v.  Atkins,  60  111.  454 ;  Smith  v.  Warder,  86  Mo.  382  ;  Garnett 
v.  Richardson,  35  Ark.  144 ;  Lind.  Part.  5 ;  Abbott  v.  Omaha  Smelt- 
ing Co.,  4  Neb.  416  ;  Johnson  v.  Corser,  34  Minn.  355.  Some  other 
authorities  similar  to  these  in  principle,  might  be  cited,  but  they  add 
nothing  to  this  side  of  the  question.  Without  stopping  to  distinguish 
these  cases  from  the  one  now  before  us,  we  think  the  decided  weight 
of  authority,  as  well  as  the  better  reason,  is  the  other  way.  Fay  v. 
Noble,  7  Cush.  188,  is  an  early  case  in  which  it  was  held  that  the  sub- 
scribers for  and  holders  of  stock  in  a  manufacturing  corporation,  which 
has  been  defectively  organized  and  transacted  business  under  such  de- 
fective organization,  do  not  thereby  become  partners,  general  or  spe- 
cial, in  such  business.  In  Trowbridge  v.  Scudder,  11  Cush.  83,  it  was 
held  that  the  stockholders  of  a  corporation  do  not  become  liable  as 
partners  on  notes  given  by  the  treasurer  of  the  corporation,  merely 
because  after  organizing  they  transacted  no  business.  In  First  JVat. 
Bank  v.  Almy,  117  Mass.  476,  it  was  held  that  the  members  of  a  cor- 
poration were  not  liable  as  partners  by  reason  of  having  transacted 
business  before  the  whole  capital  stock  was  paid  in  as  required  by 
statute.  In  Humphreys  v.  Mooney,  5  Col.  282,  in  considering  the 
question  now  before  the  court,  it  was  said:  "The  doctrine  of  a  part- 


112  BUSHNELL   V.  •  CONSOLIDATED   ICE   MACHINE   CO. 

nership  liability  in  such  case  is  not  founded  in  law  reason,  and  is  re- 
pugnant to  the  very  purposes  of  the  statute  authorizing  a  corporation, 
one  object  of  which  is  to  limit  individual  liability."  Substantially,  the 
same  doctrine  is  announced  in  G-artside  Coal  Co.  v.  Maxicell,  22  Fed. 
Rep.  197  ;  Planters'  etc.  Bank  v.  Padgett,  69  Ga.  159  ;  Stafford  Nat. 
Bank  v.  Palmer,  47  Conn.  443  ;  Ward  v.  Brigham,  127  Mass.  24 ; 
Central  etc.  Bank  v.  Walker,  66  N.  Y.  424  ;  Jessup  v.  Carnegie,  80 
N.  Y.  441  ;  36  Am.  Rep.  643  ;  Blanchardv.  Kanll,  44  Cal.  440  ;  Mora- 
wetz  Corp.  §  748.  And  17  Am.  &  Eng.  Ency.  Law,  866,  after  stating 
that  the  rule  contended  for  by  respondents  had  been  adopted  by  quite 
a  large  number  of  cases,  remarks :  "  But  the  weight  of  authority  per- 
haps  sustains  the  contraiy  rule,  that  if  they  were  acting  under  the  suj>. 
position  that  they  were  incorporated,  and  were  assuinin^_only_the. 
liability  of  stockholders,  and  not  mat  or  partners,  they"^wjll_no_t_J3e_ 
held  liable  as  such  " ;  and  a  long  list  of  cases  is  cited  to  sustain  this 
proposition. 

It  is  not  doubted  that  cases  might  arise  and  can  readily  be  imagined 
where  the  incorporators  sought  to  be  charged  might  take  such  part  in 
conducting  the  business,  or  hold  themselves  out  to  the  world  as  part- 
ners or  as  principals  in  the  business,  that  they  would  be  held  liable ; 
but  this  would  grow  out  of  their  conduct  in  carrying  on  the  business, 
and  not  out  of  the  mere  fact  of  signing  and  filing  the  articles.  If  the 
appellants  could  be  held  liable  in  this  case,  such  liability  would  rest 
on  the  mere  act  of  signing  and  filing  the  articles,  and  not  upon  any 
participation  in  the  business,  either  directly  or  indirect!}-.  It  would 
have  to  rest  upon  the  theoiy,  that  by  the  mere  signing  the  articles 
with  Martin,  they  constituted  him  their  general  agent  to  proceed  to 
conduct  the  business  contemplated  b}T  the  proposed  corporation,  thus 
creating  a  liability  for  any  act  of  his  done  within  the  scope  of  the 
powers  of  the  proposed  corporation. 

No  authority  to  which  our  attention  has  been  directed,  has  gone  so 
far,  and  we  feel  safe  in  saying  that  none  can  be  found  to  support  that 
doctrine.  We  therefore  reverse  the  judgment,  and  remand  the  cause 
for  such  further  proceedings  as  are  not  inconsistent  with  this  opinion. 


BUSHNELL  v.  CONSOLIDATED  ICE  MACHINE  CO. 

• 

1891.     138  Illinois,  67.1 

WILKIN,  J.  This  was  a  proceeding  in  chancery,  by  plaintiff  in  error, 
against  defendants  in  error,  begun  in  the  circuit  court  of  Cook  county 
oil  the  27th  day  of  October,  A.  D.  1889,  the  object  of  which  was  to 

1  Arguments  omitted.  —  ED.  • 


BUSHNELL  V.   CONSOLIDATED   ICE   MACHINE   CO.  113 

have  the  Consolidated  Ice  Machine  Company  declared  a  co-partnership, 
and  its  affairs  settled  between  the  complainant  and  defendants  accord- 
ingl}'.  In  the  circuit  court  a  general  demurrer  was  sustained  to  the 
bill,  and  a  decree  entered  dismissing  the  same  at  complainant's  costs. 
From  that  decree  this  writ  of  error  is  prosecuted. 

The  following  facts  affirmatively  appear  from  the  bill  :  Earl}'  in  Sep- 
tember, in  1884,  complainant  and  the  defendants,  Skinkle,  Rassieur 
and  Koenigsberg,  together  with  one  Edmund  Jungefeld,  since  deceased, 
entered  into  an  agreement,  in  writing,  to  form  a  corporation  to  be 
known  as  the  "  Consolidated  Ice  Machine  Company,"  under  the  laws 
of  this  State  ;  that  all  the  required  steps  up  to  and  including  the  issu- 
ing of  a  certificate  of  the  complete  organization  of  such  corporation  by 
the  Secretary  of  State,  as  required  by  section  4,  chapter  32,  of  the 
Revised  Statutes,  were  taken  ;  that  in  pursuance  of  that  certificate, 
complainant,  with  said  Skinkle,  Rassieur  and  Jungefeld,  claiming  to  be 
the  directors  of  said  company,  elected  officers  for  the  same,  "  and 
immediately  engaged  in  business."  It  also  appears  from  the  bill,  that 
said  company  continued  to  do  business  under  said  name  to  the  filing  of 
this  bill,  a  period  of  more  than  five  j-ears.  Also,  that  for  several 
months  complainant  continued  to  be  the  secretary  and  soliciting  agent 
for  the  same,  and  was  actively  engaged  in  its  business  ;  that  about 
Januaiy  1,  1885,  he  became  afflicted  with  melancholia,  and  remained 
incapacitated  for  the  transaction  of  business  for  about  three  years  ; 
that  during  his  said  sickness  the  other  directors  of  said  company  sold 
certain  shares  of  his  stock  in  said  company  for  a  failure  on  his  part  to 
pay  installments  due  thereon,  the  sale  being  made  without  notice,  etc., 
and  that  since  said  sale  he  has  been  excluded  from  all  participation  in 
the  management  of  said  business  ;  that  after  being  restored  to  health, 
and  before  filing  his  bill,  he  made  frequent  demands  to  be  restored  to 
his  rights  in  said  corporation,  without  avail,  etc.  Facts  are  then 
alleged  which  go  to  the  basis  of  a  settlement  between  the  parties  upon 
the  theory  that  they  are  liable  to  each  other  as  partners.  In  our  view 
of  the  case  these  facts  are  unimportant. 

It  is  also  insisted  in  the  argument,  that  the  bill  shows  that  b}'  the 
terms  of  the  agreement  to  organize  said  company  the  same  was  only 
to  exist  for  a  period  of  five  years,  which  had  expired  when  the  bill  was 
filed.  The  license  under  which  the  organization  was  made  is  attached 
to  the  bill  as  an  exhibit,  and  it  states  that  its  duration  shall  be  twenty- 
five  years.  If  it  were  important  to  determine  the  lifetime  of  the  com- 
pany, we  have  no  doubt  that  this  license,  and  not  the  preliminary 
agreement  of  the  parties,  would  control.  This,  however,  is  not  a 
question  of  importance  in  this  proceeding.  For  the  mere  exercise  of^ 
the  period  for  which  it  was  organized,  the  State 


alone  could  complain. 

It  is  also  contended  that  certain  subscriptions  to  the  capital  stock 
made  by  complainant  are  shown  b}-  the  bill  not  to  be  subscriptions 
made  in  good  faith,  and  that  the  directors  having  assumed  corpo- 

8 


114  BUSHNELL  V.   CONSOLIDATED  ICE   MACHINE   CO. 

rate  powers  before  all  the  stock  was  subscribed  for  in  good  faith, 
became  personally  liable  for  all  debts  and  liabilities  of  the  company, 
under  section  18,  chapter  32,  of  the  Revised  Statutes.  We  think  it 
clear  that  complainant  is  in  no  position  to  raise  that  question  in  a 
court  of  equit}'  for  the  purpose  of  having  the  company  declared  a 
co-partnership. 

The  only  allegation  of  the  bill  which  is  seriously  insisted  upon  as 
furnishing  a  ground  for  the  relief  prayed  is,  "that  the  certificate  of 
conjpteliiLQrganization  was  never  recorded  in  the  office  of  the  recorder  _ 
of  deeds  for  Cook  county,  where  its  principal  office  is  located,"  the 
argumentTbeing,  that  in  order  to  constitute  the  defendant  company  a 
corporation  under  the  laws  of  this  State  that  certificate  must  have  been 
so  recorded,  and  failing  to  become  incorporated,  its  members  are  to  be 
treated  as  partners.  The  section  of  the  statute  upon  which  the  first 
proposition  is  based  is  as  follows:  "The  Secretary  of  State  shall 
thereupon  issue  a  certificate  of  the  complete  organization  of  the  cor- 
poration, making  part  thereof  a  copy  of  all  papers  filed  in  his  office  in 
and  about  the  organization  of  the  corporation,  and  duly  authenticated 
under  his  hand  and  seal  of  State,  and  the  same  shall  be  recorded  in  a 
book  for  that  purpose  in  the  office  of  the  recorder  of  deeds  of  the 
county  where  the  principal  office  of  such  company  is  located.  Upon  the 
recording  of  said  copy  the  corporation  shall  be  deemed  fully  organized, 
and  may  proceed  to  business.  Unless  such  company  shall  be  organized, 
and  shall  proceed  to  business,  as  provided  in  this  act,  within  two  years 
after  the  date  of  such  license,  then  such  license  shall  be  deemed  re- 
voked and  all  proceedings  thereunder  void.''  The  language  of  this 
section  is  not  clear.  While  it  says  the  certificate  shall  be  recorded,  it 
does  not  say  who  shall  cause  it  to  be  done.  It  does  not  sa}r  the  record- 
ing of  the  certificate  shall  be  necessary  to  the  complete  organization  of 
a  corporation,  but  "upon  the  recording  of  the  said  copy  the  corpora- 
tion shall  be  deemed  fully  organized,  and  may  proceed  to  business." 
Conceding,  however,  by  the  word  "  copy"  is  meant  "  certificate,"  iucor- 
porators  would  have  done  all  that  is  required  of  them  when  the}'  had 
filed  it  with  the  proper  officer  for  record.  There  is  no  allegation  in 
this  bill  that  it  was  not  so  filed.  The  averment  is  simpty  that  it  has 
"  never  been  recorded,"  etc. 

But  assuming  that  a  corporate  existence  dejure  depends  upon  the 
filing  of  the  certificate  of  complete  organization  in  the  office  of  the  re- 
corder of  deeds  of  the  county  in  which  its  principal  office  is  located, 
and  that  the  bill  properly  avers  that  it  was  not  done  in  the  case  of  the 
corporation  in  question,  it  by  no  means  follows  that  it  did  not  become 
a  corporation  de  facto  as  between  the  complainant  and  defendants. 
From  the  facts  set  up  in  the  bill  it  clearly  appears  that  there  was  au. 
honest  attempt  by  the  incorporators  to  organize  a  corporation  author- 
ized  b}*  the  laws  of  this  State.  The  necessary  steps  to  perfect  that 
organization  were  alltaken  as  required  by  the  statute,  except  that  the_ 
final  certificate  wa3~~not  recorded.  Itjs_shown  by  the  bill  that  upon 


BUSHNELL   V.   CONSOLIDATED   ICE   MACHINE   CO.  115 

the  issuing  of  that  certificate  its  directors  elected  the  proper  officers 
and  proceeded  to  the  transaction  of  business  as  a  corporation,  and 
continued  to  act  as  such  until  the  filing  of  this  bill,  a  period  of  more 
than  five  years.  That  thesejfocts  establish  a  corporation  de  facto  is__ 
settled  by  numerous  decisions  of  this,  court.  President  <in<l  Trnxt<:<-*, 
etc.  v.  T/iompsonT^Ill  198  ;  Rice  v.  R.  I.  and  A.  R.  R.  Co.  21  id. 


93  ;  Baker  et  al.  v.  Administrator,  32  id.  79  ;  Ramsey  v.  Marine  and 
Fire  Ins.  Co.  55  id.  311  ;  Cincinnati,  Lafayette  and  Chicago  Rail- 
road Co.  v.  Danville  and  Vincennes  Ry.  Co.  75  id.  113;  Louisville, 
New  Albany  and  Chicago  Ry.  Co.  v.  Shires,  108  id.  617  ;  Hudson  v. 
Green  Hill  Seminary  Corporation,  113  id.  618. 

That  plaintiff  in  error,  if  he  had  been  sued  by  the  Consolidated  Ice 
Machine  Company  on  his  subscription  to  its  capital  stock,  could  not 
have  questioned  its  corporate  existence  on  the  grounds  alleged  in  his 
bill,  is  directly  settled  by  several  of  the  above  cited  decisions.  It  is 
equally  clear  that  if,  during  the  time  he  was  a  member  of  said  cor- 
poration, it  had  been  sued  as  such,  neither  he  nor  any  other  of  its 
members  could  have  been  heard  to  say  that  no  such  corporation  ex- 
isted. The  general  rule  is,  that  one  who  deals  with  a  corporation  as 
existing  de  facto,  is  estopped  to._d£ny.  as  against  itT  tbatjt  has  been, 
legally  organized.  _  It  is  the  settled  rule  in  this  State  that  the  Legal 
existejace  of  a  corporation  de  facto  can  not  be  questioned  collaterally. 
See  cases  supra,  and  RenwicJc  et  al.  v.  Hall  et  al.  84  111.  162  ;  The 
People  ex  rel.  v.  Trustees  of  Schools,  111  id.  171  ;  Keigwin  et  al.  v. 
Drainage  Comrs.  115  id.  347. 

It  seems  impossible  to  find  a  reason  for  placing  the  complainant  in 
this  bill  in  a  more  favorable  position  to  deny  the  existence  of  the  cor- 
poration in  question  than  a  mere  subscriber  to  its  capital  stock,  or  one 
who,  as  a  third  party,  had  dealt  with  it  as  a  corporation,  and  we  are  of 
the  opinion  that  he  could  not  do  so  in  this  collateral  proceeding.  He, 
however,  not  only  seeks  to  question  the  legal  organization  of  the  cor- 
poration, but  to  have  the  same  changed  into  a  co-partnership  between 
himself  and  the  other  ^corporators,  and  to  compel  the  defendants  to 
account  to  him  as  his  co-partners.  "  A  partnership  is  never  created 
between  parties  by  implication  or  operation  of  law,  apart  from  an 
express  or  implied  intention  and  agreement  to  constitute  the  relation." 
(1  Bates  on  Law  of  Partnership,  sec.  3.)  In  Phillips  v.  Phillips, 
49  111.  437,  CATON,  C.  J.,  said  :  "  A  partnership  can  only  exist  in  pur- 
suance of  an  express  or  implied  agreement,  to  which  the  minds  of  the 
parties  have  assented."  This  rule  will  not  prevent  the  enforcement  of 
liability  against  persons  as  partners,  when  sued  by  third  parties.  "  Par- 
ties may  so  conduct  themselves  as  to  be  liable  to  third  persons  as 
partners,  when  in  fact  no  partnership  exists  as  between  themselves. 
The  public  are  authorized  to  judge  from  appearances  and  professions, 
and  are  not  absolutely  bound  to  know  the  real  facts,  while  the  certain 
proof  is  positively  known  to  the  alleged  parties  to  a  firm."  (Phillips 
v.  Phillips,  supra.}  On  this  latter  ground  parties  who  have  attempted 


116  BUSHNELL   V.   CONSOLIDATED   ICE   MACHINE   CO. 

to  organize  a  corporation,  but  have  failed  to  comply  with  the  law,  so 
as  to  perfect  their  incorporation,  may  be  held  liable  as  partners  to 
creditors,  as  in  Biyelow  v.  Gregory  et  al.  73  111.  197.  This  liabiltty 
rests  on  the  doctrine  of  estoppel.  When,  however,  even  a  creditor  has 
dealt  with  the  corporation  as  such,  partnership  liability  can  not  be 
enforced,  even  though  the  corporation  has  not  been  legalty  organized. 
Tarbdl  v.  Page,  24  111.  46. 

It  is  wholl}'  unnecessary,  however,  in  this  case,  to  determine  when 
and  under  what  circumstances  third  parties  may  proceed  against  incor- 
porators  acting  under  a  defective  or  imperfect  organization,  as  indi- 
viduals or  co-partners.  In  this  case  the  complainant  shows  by  his  bill 
that  he  was  not  01113*  one  of  the  incorporators  of  the  compan}'  he  now 
seeks  to  question,  but  that  he  was,  upon  its  complete  organization, 
elected  its  secretary  and  general  agent,  and  acted  as  such  for  several 
months  prior  to  his  alleged  disabilit\-,  during  which  time  he  was 
actively  engaged  in  assisting  to  cany  on  its  corporate  business,  and 
that  upon  his  being  restored  to  health  he  still  recognized  its  corporate 
existence,  and  sought  to  be  restored  to  his  rights  therein.  If  the 
recording  of  the  certificate  in  question  was  essential  to  the  organiza- 
tion of  the  corporation,  there  is  nothing  in  this  bill  to  show  that  it 
was  not  as  much  his  dut}'  to  have  it  done  as  either  of  the  other  incor- 
porators. We  are  unable  to  perceive,  then,  upon  what  principle  he 
can  now  compel  those  who,  for  anj'thing  appearing  in  this  bill,  hon- 
estl}*  supposed  the}-  were  incorporated  during  all  the  time  the  business 
mentioned  in  the  bill  was  being  carried  on,  to  account  to  him,  upon  the 
theoiy  that  they  were  his  co-partners.  In  fact,  if  the  allegation  as  to 
his  mental  condition  at  the  time  his  stock  was  sold  was  omitted  from 
the  bill,  it  would  strike  an}'  one  as  too  clear  for  argument  that  he  has 
failed  to  state  a  case  entitling  him  to  equitable  relief,  and  it  must,  we 
think,  be  held,  that  whether  that  fact,  together  with  the  allegation  that 
his  stock  was  sold  without  notice  and  he  ousted  from  all  participation 
in  the  business  of  the  company,  would  entitle  him  to  his  action  for  that 
alleged  wrong,  or  to  be  restored  to  his  former  rights  as  a  member  of 
said  corporation  or  not,  no  legal  ground  is  shown  by  this  bill  for  hold- 
ing defendants  liable  to  him  as  partners. 

There  is  nothing  in  the  case  of  Flagg  v.  Stowe,  85  111.  1G6,  when 
the  facts  of  that  case  are  considered  as  the3*'appear  in  that  report,  and 
in  Stowe  v.  Flagg  et  al  72  111.  397,  contrar}*  to  the  view  here  ex- 
pressed. We  have  examined  the  numerous  cases  cited  by  counsel  for 
plaintiff  in  error  as  giving  support  to  the  position  that  a  corporation 
defectively  organized  may  be  treated  as  a  co-partnership,  and  the  mem- 
bers held  liable  as  partners  ;  butwhen  it  is  borne  in  mind  that  com- 
plainant himself  was  a  member  of  the  corporation  in  question,  and  in 
no  sense  a  third  party,  and  that  he  is  not  seeking  by  this  bill  to  recover 
for  an3'tbing  which  he  has  been  required  to  pay  third  parties  for  or  on 
behalf  of  said  corporation,  they  have  no  application.  What  he  seeks 
to  do  is  to  have  the  corporation  converted  into  a  partnership,  contrary 


SNYDEE   V.   STUDEBAKER.  117 

to  the  contract  of  the  parties,  simply  because  he  and  other  incorpora- 
tors  failed  to  perfect,  as  he  says,  the  corporation.  He  does  not  even 
show  that  he  has  been  misled  or  in  any  wa}'  injured  by  the  failure  to 
have  the  certificate  of  complete  organization  recorded.  Neither  does 
he  pretend  that  the  omission  of  any  of  the  incorporators  to  have  the 
same  recorded  was  willful,  or  in  any  way  designed  to  injure  him  or 
others. 

We  can  find  neither  authority  nor  reason  to  sustain  this  bill,  and  are 
clearly  of  the  opinion  that  the  decree  of  the  circuit  court  is  right. 

Decree  affirmed. 


SNYDER  v.    STUDEBAKER. 

1862.     19  Indiana,  462. 

APPEAL  from  the  Wells  Circuit  Court. 

WORDEX,  J.  This  was  an  action  by  Snyder  against  StudebaJcer, 
to  recover  possession  of  a  certain  tract  of  land.  Judgment  for  the 
defendant. 

The  same  question  is  presented  by  the  pleadings  and  the  evidence. 

It  appears  that,  in  March,  1853,  the  plaintiff,  who  was  then  the 
owner  of  the  land,  conveyed  the  same  to  the  Fort  Wayne  and  Southern 
Railroad  Company,  by  deed,  duly  executed  and  delivered. 

This  conveyance  was  made  on  account  of  a  stock  subscription. 

Afterward,  in  November,  1855,  the  railroad  company,  for  a  valuable 
consideration,  conveyed  the  premises  to  the  defendant. 

The  .Fort  Wayne  and  Southern  Railroad  Company  was  chartered 
by  an  act  of  the  legislature,  passed  in  1849  ;  and  it  appears  that  the 
corporators  named  in  the  act  in  question  met  in  the  town  of  Bluffton, 
in  said  count}'  of  Wells,  on  the  19th  day  of  November,  1851,  and  then 
and  there  accepted  the  act  of  incorporation,  and  organized  the  company 
pursuant  to  the  provisions  of  said  act. 

If  the  corporation  was  not  created  before  the  1st  of  November,  1851, 
when  the  new  constitution  took  effect,  it  could  have  no  existence  at 
all,  as  that  instrument  prohibits  the  creation  of  corporations,  other 
than  banking,  by  special  act.  The  State  v.  Dawson,  16  Ind.  40. 
Harriman  v.  Southam,  Id.  190. 

The  plaintiff  claims,  that  inasmuch  as  there  was  no  acceptance  of 
the  charter,  or  organization  under  it,  until  after  the  adoption  of  the 
constitution  of  1851,  there  was  no  such  corporation  as  The  Fort  Wayne 
and  Southern  Railroad  Company  at  the  time  he  executed  the  convey- 
ance, and,  hence,  that  no  title  passed  from  him.  But  is  he  in  a  con- 
dition to  dispute  the  existence  of  the  corporation  at  the  time  he  made 
his  conveyance  to  it? 


118  SNYDER   V.   STUDEBAKER. 

It  has  been  held,  in  numerous  cases  in  this  State,  that  a  party  who 
has  contracted  with  a-£Qrj3oration,  as  such^iJ,  as  a  general  proposition, 
estopped  by  his  contract  to  dispute  the  existence  of  the  corporation  at 
^Onnijme  of  the  contract.  The  following  cases  may  be  cited,  though 
there  are,  perhaps,  others  reported,  and  some  not  reported  as  yet. 
Jndah  v.  The  American  Live  Stock  Insurance  Company,  4  Ind.  333. 
The  Brookville  and  Greensburg  Turnpike  Company  v.  McCarty, 
8  Id.  392.  Ensey  v.  The  Cleveland  and  St.  Louis  Railroad  Com- 
pany, 10  Id.  178.  Fort  Wayne  and  Bluff  ton  Turnpike  Company  v. 
Deam,  Id.  563.  Jones  v.  The  Cincinnati  Type  Foundery  Company, 
14  Id.  89.  Hubbard  v.  Chappell,  Id.  601.  The  Evansville,  etc. 
Railroad  Company  v.  The  City  of  Evansville,  15  Id.  395.  Meikel 
v.  The  German  Savings  Fund  Society,  16  Id.  181.  Heaston  v.  The 
Cincinnati  and  Fort  Wayne  Railroad  Company^  Id.  275. 

The  doctrine  is  by  no  means  confined  to  the  State,  but  prevails  else- 
where. The  Datchess  Cotton  Manufactory  v.  Davis,  14  Johns.  238. 
All  /Saints  Church  \.  Lovett,  1  Hall,  191.  Palmer  v.  Lawrence, 
3  Sand.  Sup.  C.  R.  161.  Eaton  v.  Aspinwall,  6  Duer,  176.  Jones  v. 
Bank  of  Tennessee,  8  B.  Mon.  122.  Worcester  Medical  Institution 
v.  Harding,  11  Cush.  285.  The  Congregational  Society  v.  Perry, 
6  N.  H.  164.  People's  Savings  Bank,,  etc.  v.  Collins,  27  Conn.  142. 
West  Winsted  Savings  Bank  v.  Ford,  Id.  282.  Angell  and  Ames  on 
Corp.,  sec.  94. 

The_estpppel  arises  upon  matter  of  fact  only,  and  not  upon  matter  of 
law.  Hnnop,  if  t.hpyp  hp  no  In.w  which  authorized  the  supposed  corpO; 


ration,  or  if  the  statute  authorizing  it  be  unconstitutional  and  void,  the 
contract  does  not  estop  the  party  making  it,  to  dispute  the  existence 
of  the  corporation.  But  if,  on  the  other  hand,  there  be  a  law  which 
,  authorized  the  corporation,  then,  whether  the  corporators  have  com- 
plied  with  it,  so  as  to  become  duly  incorporated,  is  a  question  of  fact. 
;md  the  party  making  the  contract  is  estopped  to  dispute  the  organi- 
sation or  the  legal  existence  of  the  corporation.  This  proposition  is 
substantially  stated  in  the  cases  of  Jones  v.  The  Cincinnati  Type 
Foundery  Company  ;  Meikel  v.  The  German  Savings  Fund  Society  ; 
and  Heaston  v.  The  Cincinnati  and  Fort  Wayne  Railroad  Company, 
supra. 

Let  us  apply  the  doctrine  to  the  case  before  us.  The  corporators 
named  in  the  act  to  establish  the  Fort  Wayne  and  Southern  Railroad 
Company  had  a  right,  at  an}'  time  before  the  offer  of  the  franchises 
was  withdrawn,  that  is,  before  the  constitution  of  1851  was  adopted, 
to  accept  the  charter,  and  organize  under  it.  If  they  did  so  accept  the 
charter,  and  organize,  the  corporation  was  legitimate!}'  created,  and 
the  new  constitution  did  riot  destroy  it. 

Whether  they  did  so  accept  the  charter,  and  organize,  was  a  ques- 
tion of  fact,  and  the  plaintiff,  by  his  conveyance,  is  estopped  to  deny 
such  acceptance  and  organization. 

That  the  £Oj^or^torsaccepted  the  charter,  and  organized  under  it, 


SNYDER   V.    STUDEBAKER.  119 

within  the  time  when  it  was  competent  to  do  so,  was  as  fully  admitted 
by  the  contract,  as  was  am-  other  step  necessary  to  an  ojganization. 

The  conclusion  necessarily  follows,  that  the  plaintiff  is  estopped  to 
dispute  the  existence  of  the  corporation  at  the  time  of  his  conveyance 
to  it. 

This  point  was  ruled  the  other  way  in  the  case  of  Harriman  v. 
Southam,  16  Ind.  190,  but,  upon  more  more  mature  reflection,  we  are 
satisfied  that  the  decision  upon  this  point  was  wrong,  and  should  be 
overruled. 

We  ma}*  rerrark,  also,  that  the  doctrine  of  estoppel  was  erroneously 
applied  in  the  case  of  The  Evansville,  etc.  Railroad  Co.  \.  The  City 
of  Eransville,  15  Ind.  395.  There  the  point  made  was,  that  the  law, 
under  which  the  corporation  was  organized,  was  unconstitutional  and 
void.  A  party,  we  have  seen,  does  not,  by  his  contract,  estop  himself 
to  den}-  that  there  is  an}-  law,  or  any  valid  law,  by  which  the  corpora- 
tion was  authorized. 

Some  further  observation,  in  respect  to  the  case  before  us,  will  not 
be  out  of  place.  The  doctrine  of  estoppel,  as  applied  to  the  case,  does 
not  rest  upon  a  mere  technical  rule  of  law.  It  has  its  foundation  in  the 
clearest  equity,  and  the  principles  of  natural  justice.  The  doctrine  of 
estoppel,  in  pais,  is  of  comparatively  recent  growth,  but  is  firmly  and 
clearly  established.  "  The  recent  decisions  of  the  courts,  both  in  this 
country  and  in  England,  appear  to  have  given  a  much  broader  sweep 
to  the  doctrine  of  estoppel  in  pais,  than  that  which  formerly  existed, 
and  to  have  established  that,  in  all  cases  where  an  act  is  done,  or  a 
statement  made,  by  a  party,  the  truth  or  efficacy  of  which  it  would  be 
a  fraud,  on  his  part,  to  controvert  or  impair,  there  the  character  of  an 
estoppel  will  be  given  to  what  would  otherwise  be  mere  matter  of  evi- 
dence, and  it  will,  therefore,  become  binding  upon  a  jury,  even  in  the 
presence  of  proof  of  a  contrary  nature."  2  Smith,  Lead.  Ca.  p.  531, 
1  Am.  Ed.  See,  also,  upon  this  subject,  Kinney  v.  Farnsworth,  17 
Conn.  355.  Middleton  J3ank  v.  Jerome,  18  Id.,  443.  Laney  v. 
Laney,  4  Ind.  149.  In  Doe  ex  dem.  Richardson  v.  Baldwin,  1  Za- 
briskie,  397,  it  was  said,  that  "  The  doctrine  of  estoppel  rests  upon  the 
principle,  that  when  one  has  done  an  act,  or  made  a  statement,  which 
it  would  be  a  fraud,  on  his  part,  to  controvert  or  impair,  and  such  act 
or  statement  has  so  influenced  any  one  that  it  has  been  acted  upon,  the 
party  making  it  will  be  cut  off  from  the  power  of  retraction.  It  must 
appear,  1 .  That  he  has  done  some  act,  or  made  some  admission  incon- 
sistent with  his  claim  ;  2.  That  the  other  party  has  acted  upon  such 
conduct  or  admission ;  3.  That  such  party  will  be  injured  by  allowing 
the  conduct  or  admission  to  be  withdrawn."  Here  the  plaintiff,  by  his 
conveyance  to  the  corporation,  admitted  that  it  had  an  existence,  and 
could_receive  the  title.  Upon  this  act  and  admission  of  the  jplaintiff 
fhpjftfp.njn.nt  1ms  nntorl)  in  pim-hasing  the  land  of  l.h_e  company.  TF 
the  plaintiff  had  not  conveyed  to  the  corporation,  the  defendant  would 
not  have  purchased  from  it.  The  law  will  not  now  permit  the  plaintiff 


120  SO«ETY  PEKUN  V.   CLEVELAND. 

to  withdraw  the  admission  made  by  him  in  conveying  to  the  corpora- 
tion, and  deprive  the  defendant  of  the  land  which  he  purchased  on  the 
faith  of  such  admission. 

In  our  opinion,  the  judgment  below  is  right,  and  must  be  affirmed. 

Per  Curiam.  —  The  judgment  is  affirmed,  with  costs. 

John  JK,  Coffroth,  for  the  appellant. 


SOCIETY  PERUN  v.   CLEVELAND. 

1885.     43  Ohio  State,  481. * 

ERROR  to  the  District  Court  of  Cuyahoga  County. 

Action  by  cit}T  of  Cleveland  to  foreclose  a  mortgage,  as  against  cer- 
tain subsequent  grantees,  mortgagees,  and  purchasers.  Perun,  a  cor- 
poration, Jan.  28,  1874,  executed  and  delivered  a  mortgage  to  the  cit}r. 
This  mortgage  was  not  filed  for  record  until  Oct.  21,  1879.  In  Feb- 
ruary, 1874,  certain  persons  attempted  to  organize,  under  general  laws, 
a  corporation  by  the  name  of  Society  Perun.  In  Ma}',  1874,  Perun. 
delivered  to  Society  Perun  its  deed,  purporting  to  conve}-  to  the  latter 
the  premises  theretofore  mortgaged  to  the  city.  Between  that  date 
and  Oct.  21,  1879,  Society  Perun,  acting  in  its  supposed  corporate 
capacitj-,  executed  and  delivered  deeds  and  mortgages,  purporting  to 
conve}*  and  incumber  parcels  of  these  mortgaged  premises  to  various 
parties,  who  are  made  defendants  in  the  present  suit.  During  the  pen- 
dency of  the  present  foreclosure  suit,  it  was  adjudged,  in  a  Quo  War- 
ranto  proceeding,  instituted  by  the  Attorney  General,  that  the  persons 
who  attempted  to  incorporate  under  the  name  of  Societ}'  Perun  had 
not  been  legall}'  incorporated,  and  that  their  attempted  organization  as 
a  corporation  was  wholly  void  ;  and  a  decree  of  ouster  was  rendered. 
Upon  the  trial  of  the  present  foreclosure  suit  in  the  District  Court,  the 
plaintiff  gave  in  evidence,  against  the  objection  of  the  defendants,  the 
record  of  the  Quo  Warranto  proceedings.  Defendants  offered  evidence 
tending  to  prove  an  attempt  in  good  faith  to  incorporate  Society  Perun. 
This  evidence  was  excluded,  and  defendants  excepted.  The  District 
Court  found,  among  other  things,  that,  as  to  the  city  of  Cleveland. 
Society  Perun  was  not  a  corporation  either  in  law  or  in  fact ;  that  the 
conveyance  to  it  by  Perun  was  void  as  against  the  city  ;  and  that  the 
claims  of  all  the  defendants  (except  certain  claims  for  taxes  and  im- 
provements) were  subsequent  and  inferior  to  the  lien  of  the  city.  To 
reverse  the  judgment  rendered  upon  these  findings,  error  was  brought. 

Willson  &  /Sykora,  for  plaintiff  in  error. 

B.  R.  Beavis,  for  executors  of  Stone,  cross-petitioners  in  error. 

A.  T.  Brinsmade  and  W.  E.  Sherwood,  for  city  of  Cleveland. 

1  Statement  abridged.    Arguments  omitted.  —  ED. 


SOCIETY   PERUN   V.   CLEVELAND.  121 

OWEN,  J.  The  defendants  below,  conceding  that  Society  Perun  had 
never  been  a  corporation  dejure.  maintain  that  the  court  below  should 
have  permitted  them  to  prove  that  such  society  was  a  de  facto  corpora- 
tion ;  that  it  attempted,  in  good  faith,  to  become  a  bod}'  corporate  ; 
proceeded  to  act  and  transact  business  in  good  faith  under  the  sup- 
posed authorit}'  of  incorporation,  and  that  its  acts  ought  not  to  have 
been  declared  to  be  wholly  void  as  against  the  city  of  Cleveland. 

The  judgment  of  ouster  was  an  adjudication  between  the  state  and 
the  society  upon  the  right  of  the  latter  to  exercise  corporate  franchises. 
For  the  purposes  of  such  adjudication  it  was  competent  for  this  court 
to  consider  and  determine  what  had  been  its  status  from  its  first  at- 
tempt to  incorporate.  But  it  had  no  power  to  pass  upon  or  determine 
the  rights  of  parties  not  before  it. 

It  was  not  competent  for  this  court  to  determine  in  that  proceeding 
that  Society  Perun  had  never  been  a  corporation  de  facto,  or  that  its 
acts  and  business  transactions,  under  the  color  of  its  supposed  charter 
powers,  were  void.  The  authority  of  the  court  in  that  behalf  was  de- 
rived from  sec.  6774  (Rev.  Stats.),  which  provides:  "  When  a  defend- 
ant is  found  guilty  of  usurping,  intruding  into,  or  unlawfully  holding  or 
exercising  an  office,  franchise,  or  privilege,  judgment  shall  be  rendered 
that  such  defendant  be  ousted  and  altogether  excluded  therefrom,  and 
that  the  relator  recover  his  costs." 

When  the  court  had  excluded  the  societj-  from  its  franchises  to  be  a 
corporation,  it  exhausted  its  jurisdiction  over  the  subject-matter.  It 
had  no  power  to  speak  concerning  whatever  rights  ma}"  have  been 
acquired  by  the  society  as  a  corporation  de  facto,  or  by  third  parties  in 
their  transactions  with  it  as  an  acting  corporation. 

It  is  conceded  by  the  city  that  parties  who  had  recognized  the  exist- 
ence of  the  societ\"  by  their  transactions  with  it  as  a  supposed  corpora- 
tion are  estopped  to  deny  its  corporate  existence.  But  it  is  maintained 
that  the  city,  having  engaged  in  no  transactions  with  it,  is  free  to  chal- 
lenge its  existence  as  a  corporation  de  facto  as  well  as  de  jure.  The 
argument  is  that:  "  No  case  can  be  found  where  it  is  held  that  there 
is  a  corporation  de  facto  against  persons  who  have  in  no  wa}-  recog- 
nized its  existence  as  a  corporation,"  and  that:  "  The  notion  of  a  de 
facto  corporation  is  based  on  the  doctrine  of  estoppel ;  when  estoppel 
can  not  be  invoked  there  can  be  no  de  facto  corporation." 

The  theory  that  a  de  facto  corporation  hn.«  nn  real  existence,  that  it_ 
is  a  mere  phnjitonf^to  be  invoked  only  by  that  rule  of  estoppel  which 
forbids  a  partywho  has  dealt  with  a  pretended  corporation  to  den^its 
Corporate  existence,  has  no  foundation,  pithnr  in  reason  or  authority. 
A.  de  facto  corporation  is  a  reality.  It  has  an  actual  and  substantial 
legal  existence.  Tt  is;  ns  the  term  implies,  a  corporation. 

"  It  is  a  self-evident  proposition  that  a  contract  can  not  be  made  with 
a  corporation  unless  the  corporation  be  in  existence  at  the  time.  A 
real  contract  with  an  imaginary  corporation  is  as  impossible,  in  the 
nature  of  things,  as  a  real  contract  with  an  imaginary  person.  It  is 


122  SOCIETY   PERUN  V.   CLEVELAND. 

essential,  therefore,  in  order  to  establish  the  existence  of  a  contract 
with  a  corporation,  to  show  that  the  corporation  was  in  existence,  at 
least  de  facto,  at  the  time  the  contract  was  made."  Morawetz  Private 
Corporations,  sec.  137. 

It  is  bound  by  all  such  acts  as  it  might  rightfully  perform  as  a  cor- 
poration de  jure.  Where  it  has  attempted  in  good  faith  to  assume 
corporate  powers ;  where  its  proceedings  in  that  behalf  are  colorable, 
and  are  approved  b}-  those  officers  of  the  state  who  are  authorized  to  act 
in  that  regard  ;  where  it  has  honestly  proceeded  for  a  number  of  years, 
without  interference  from  the  state,  to  transact  business  as  a  corpora- 
tion ;  has  been  reputed  and  dealt  with  as  a  duly  incorporated  body, 
and  valuable  rights  and  interests  have  been  acquired  and  transferred 
by  it,  no  substantial  reason  is  suggested  why  its  corporate  existence,  in 
a  suit  involving  such  transactions,  should  be  subject  to  attack  by  any 
other  party  than  the  state,  and  then  only  when  it  is  called  upon  in  a 
direct  proceeding  for  that  purpose,  to  show  by  what  authorit}7  it  assumes 
to  be  a  corporation. 

Proof  was  offered  upon  the  trial  below  to  show,  (1)  that  the  persons 
seeking  to  incorporate  first  filed  with  the  secretary  of  state  a  certificate 
which  fully  complied  with  the  requirements  of  the  statutes,  and  free 
from  the  defect  which  finally  proved  fatal  to  its  existence,  but  which 
was  disapproved  by  the  attorney-general ;  (2)  That  the  certificate  of 
incorporation  which  was  finally  filed  with  the  secretary  of  state  recited 
that,  "  said  association  has  been  formed  and  organized  for  the  mutual 
protection  and  relief  of  its  members,  and  for  the  payment  of  stipulated 
sums  of  mone}"  to  the  families  or  heirs  of  the  deceased  members  of  said 
association  ;  that  the  officers  of  said  association  have  been  duly  chosen  ; 
that  for  the  purpose  of  becoming  a  body  corporate  under  an  act  passed 
by  the  general  assembly  of  the  state  of  Ohio,  entitled,  an  act  sup- 
plementary to  an  act,  entitled  an  act  to  provide  for  the  creation  and 
regulation  of  incorporated  companies  in  the  state  of  Ohio,  passed  Ma}' 
1, 1852,  passed  April  20,  1872  ;  "  (3)  That  this  certificate  was  approved 
by  the  secretar}'  of  state,  and  also  by  the  attornej'-general,  as  provided 
by  the  statutes  (69  Ohio  L.  150)  ;  (4)  That  it  proceeded  in  good  faith 
to  transact  business  peculiar  to  corporations  provided  for  by  the  act 
under  which  it  attempted  to  incorporate. 

All_this  was  excluded,  and__the_decisionjof_the  court_below_rjractically 
restedon  the  J^roof  offerecT  by  the  cit}',  that_Society  Ferun  had  been 
ousted  of  its  franchises,  which  was  evidentlyconstrued  as  determining 
that  such  society  had  from  the  first  no  corporate  existence,  either  de_ 
jure  or  c?e./acjlo,_and  consequently  no  capacity  to  receive  or  impart  any_ 
s-  interest  in  or  title  to  rpn.1  pstntp  pypppt  as  against  such  parties  as  were 
b}'  reason  of  their  recognition  of  or  dealings  with  it,  estopped  to  deny 
its  incorporate  existence. 

Did  the  court  err?  This  fairly  presents  the  controlling  and  very  im- 
portant question  :  Was  it  competent  to  show,  as  against  a  party  who 
was  not  estopped  to  deny  its  corporate  existence,  that  Society  Perun 


SOCIETY   PERUN  V.   CLEVELAND.  123 

was,  at  the  time  of  the  transactions  involved  in  controversy,  a  corpora- 
tion de  facto? 

In  Attorney- General  ex  rel.  Pettee  v.  Stevens,  Saxton  (N.  J.  Eq.)  369, 
the  relator  sought  to  enjoin  the  Camden  and  Amboy  R.  R.  and  Trans- 
portation Co.  and  others  acting  under  its  authority  from  erecting  a 
bridge  over  a  navigable  stream.  The  claim  was  that  the  act  author- 
izing the  corporation  had  been  perverted  and  disregarded,  and  that 
there  was  no  legal  incorporation.  The  relators  were  in  no  manner 
estopped  to  attack  the  corporate  existence  of  the  respondent.  The 
court  held : 

"  Where  a  set  of  men  claiming  to  be  a  legally  incorporated  company 
under  an  act  of  the  legislature,  have  done  everything  necessary  to  con- 
stitute them  a  corporation,  colorably  at  least,  if  not  legally,  _and  are 
exercising  all  the  powers  and  functions  of  a  corporation  ;  they  are  a 
corporation,  de  facto,  if  not  dejure  ;  and  this  court  will  not  interfere, 
in  an  incidental  way,  to  declare  all  their  proceedings  void,  and  treat"  ^ 
them  as  a  body  having  no  rights  or  powers." 

The  chancellor,  speaking  for  the  court,  said : 

"  Here,  then,  is  a  set  of  men  claiming  to  be  a  legally  incorporated 
company  under  the  act  of  the  legislature,  exercising  all  the  powers  and 
functions  of  a  corporation.  They  are  a  corporation  de  facto,  if  not 
dejure.  Every  thing  necessarj*  to  constitute  them  a  corporation  has 
been  done,  colorably  at  least,  if  not  legalty ;  and  I  do  not  feel  at 
liberty,  in  this  incidental  wa}",  to  declare  all  their  proceedings  void,  and 
treat  them  as  a  bods'  having  no  rights  or  powers.  It  has  been  seen 
that  the  court  will  not  do  this  where  a  corporation  property  organized 
has  plainly  forfeited  its  privileges  ;  and  there  is  but  little  difference  in 
principle  between  the  two  cases.  In  both  the  corporation  is  actually  in  ^ 
existence,  but  whether  legally  and  rightfully  so  is  the  question.  And 
it  appears  to  me  that  if  the  court  can  take  cognizance  of  the  matter  in 
this  case,  it  must  in  all  others  where  it  can  be  brought  up,  not  only 
directly,  but  incidentally." 

This  case  is  approved  and  followed  in  National  Docks  R.  Co.  v. 
Central  R.  R.  Co.,  32  N.  J.  Eq.  755,  which  held  :  "  When  a  corpora- 
tion exists  de  facto,  the  court  of  chancery  can  not,  at  the  instance  of 
private  parties,  restrain  its  operations  upon  the  ground  that  its  organi- 
zation is  not  dejure.  In  such  case  the  proper  remedy  is  by  quo  tjcar- 
ranto,  or  information  in  the  nature  thereof,  instituted  by  the  attorne}-- 
general."  The  rule  of  estoppel  found  no  place  in  this  case. 

In  S.  &  L.  G.  R.  Co.  v.  8.  &  C.  JR.  R.  Co.,  45  Cal.  680,  it  was 
held  that:  "  If  a  corporation  de  facto  is  in  the  actual  possession  of  a 
public  highway,  under  a  grant  of  a  franchise  to  improve  and  collect 
tolls  on  the  same,  a  mere  trespasser  can  not  justify  his  entiy  thereon 
on  the  ground  that  it  was  onty  a  corporation  de  facto,  and  was  not  de 
jure  entitled  to  the  franchise." 

In  Williams  v.  Kokomo  B.  &  L.  Ass'n.,  89  Ind.  339,  one  Leach 
gave  to  an  acting  corporation  his  mortgage  on  real  estate.  Subsequent 


124  SOCIETY   PERUN   V.   CLEVELAND. 

to  the  execution  and  recording  of  it,  he  executed  another  mortgage  on 
the  same  land  to  Williamson.  In  a  proceeding  to  foreclose  the  junior 
mortgage,  Williamson  maintained  that  the  pretended  corporation  had 
no  legal  existence,  by  reason  of  defects  and  omissions  in  the  proceed- 
ings to  incorporate,  and  that  the  senior  mortgage  was  void.  He  was  in 
no  manner  estopped,  by  dealings  with,  or  recognition  of,  the  first  mort- 
gagee to  deny  its  corporate  existence.  The  court  held  that :  "  A  junior 
mortgagee  can  not  defeat  a  senior  mortgage  by  showing  that  the  corpo- 
ration to  which  the  senior  mortgage  was  executed  was  defectively  or- 
ganized, if  it  be  a  corporation  de  facto."  Elliot,  J.,  said:  "Where 
persons  assume  to  incorporate  under  the  laws  of  the  state,  and  in  part 
compl}-  with  their  requirements,  assume  .corporate  functions  and  trans- 
act business  as  a  corporation,  private,  persons  can  not  collaterally 
question  the  right  of  such  an  association  to  a  corporate  existence, 
although  there  has  not  been  a  full  compliance  with  the  provisions  of 
the  statute.  Baker  \.  Neff,  73  Ind.  68.  This  rule  is  not  limited  to 
cases  where  one  by  contract  admits  corporate  existence,  but  is  a  rule 
of  general  application"  It  is  not  eas}'  to  distinguish  the  principle  of 
this  case  from  that  of  the  case  at  bar. 

In  Pape  v.  Capitol  Bank,  20  Kan.  440,  Pape  and  wife  gave  their 
notes  to  "James  M.  Spencer  or  bearer,"  and  their  mortgage  on  real 
estate  to  secure  them.  Spencer  transferred  the  notes  to  the  Capital 
Bank  of  Topeka,  an  acting  corporation,  with  this  indorsement:  "  Pay 
the  bearer,  without  recourse  on  me ;  James  M.  Spencer."  The  mort- 
gage was  also  transferred  to  the  bank,  which  proceeded  b}-  suit  to  col- 
lect the  notes  and  foreclose  the  mortgage.  Pape  and  wife  interposed 
the  defense  that  the  bank  was  not,  and  never  had  been,  a  body  corpo- 
rate, by  reason,  among  others,  of  a  defective  organization.  The  bank 
had  assumed  corporate  functions  after  an  attempt,  in  good  faith,  to  in- 
corporate, and  for  a  number  of  years  was  in  the  actual  and  notorious 
exercise  of  corporate  franchises.  Pape  had  transacted  banking  business 
with  the  plaintiff  prior  to  the  purchase  of  the  notes  and  mortgage,  but 
such  business  was  wholly  unconnected  with  the  notes  and  mortgage  in 
suit.  His  wife,  however,  had  not  in  any  manner  recognized  the  exist- 
ence of  the  bank  as  a  corporate  bod}",  and  the  doctrine  of  estoppel  was 
not  invoked  to  aid  the  court  in  sustaining  a  judgment  of  foreclosure 
against  Pape  and  wife.  Brewer,  J.,  says:  "The  corporation  is  one 
de  facto  ;  and  only  the  state  can  inquire,  and  that,  in  a  direct  proceed- 
ing, whether  it  be  one  dejure.  .  .  .  There  must,  in  such  cases,  be  a  law 
under  which  the  incorporation  can  be  had ;  there  must,  also,  be  an  at- 
tempt, in  good  faith,  on  the  part  of  the  corporators,  to  incorporate 
under  such  law ;  and  when,  after  this,  there  has  been  for  a  series  of 
years  an  actual,  open,  and  notorious  exercise,  unchallenged  by  the 
state,  of  the  powers  of  a  corporation,  one  who  is  sued  on  a  note  held 
by  such  corporation  will  not  be  permitted  to  question  the  validity  of  the 
incorporation  as  a  defense  to  the  action.  No  mere  matters  of  technical 
omission  in  the  incorporation,  no  acts  of  forfeiture  from  misuser  after 


SOCIETY   PERUN   V.   CLEVELAND.  125 

the  incorporation,  are  subjects  of  inquiry  in  such  an  action.  This  is 
not  upon  the  ground  of  equitable  estoppel  but  upon  grounds  of  public 
policy.  If  the  state,  which  alone  can  grant  the  authority  to  incorporate, 
remains  silent  during  the  open  and  notorious  assertion  and  exercise  of 
corporate  powers,  an  individual  will  not,  unless  there  be  some  powerful 
equity  on  his  side,  be  permitted  to  raise  the  inquiry." 

In  Thompson  v.  Candor,  60  111.  244,  Willetts,  in  February,  1858, 
deeded  to  "  Mercer  Collegiate  Institute,"  a  body  pretending  to  be  a 
corporation,  the  tract  of  land  in  controversy.  He  died  in  March,  1858. 
In  1868  his  heirs  quit-claimed  their  interest  in  the  land  to  Thompson, 
who  filed  a  bill  in  chancery  for  the  cancellation  of  the  deed  from  Wil- 
letts to  the  "Institute,"  alleging,  as  one  of  the  grounds  of  relief,  that 
the  named  grantee  was  not  legally  incorporated  —  had  no  capacity  to 
take  the  title,  and  that  the  deed  was  void.  The  court  held : 

"  Where  parties  endeavor  to  organize  a  corporation  for  educational 
purposes,  under  the  general  law,  adopt  a  name,  elect  trustees,  and  or- 
ganize by  electing  a  president  and  officers,  and  the  trustees  had  acted 
for  years  in  managing  the  property,  had  leased  and  mortgaged  it,  and 
expended  a  large  sum  of  mone}-  in  its  improvement,  these  acts  consti- 
tute it  a  corporate  body  de  facto,  and  the  regularity  of  its  organization 
can  not  be  questioned  collaterally.  Such  irregularity  can  only  be  ques- 
tioned by  quo  warranto  or  scire  facias." 

Thornton,  J.,  says:  "In  1856  an  attempt  was  made  to  organize  a 
corporation  under  the  general  incorporation  law.  A  corporate  name 
was  selected,  trustees  were  appointed,  and  an  organization  effected  by 
the  election  of  a  president  and  proper  officers.  The  trustees  thus  ap- 
pointed acted  for  years  in  the  general  management  of  the  property, 
leased  and  mortgaged  it,  and  expended  a  large  amount  of  money. 
Here  then  was  a  corporate  bod}*  de  facto,  which  had  been  engaged 
in  an  undertaking  involving  important  interests.  The  regularity  of  its 
organization  can  not  be  questioned  collaterally.  Any  alleged  non- 
compliance  with  the  law  can  only  be  inquired  into  by  the  writ  of  quo 
warranto  or  scire  facias.1" 

There  is  no  suggestion  throughout  the  entire  case  of  the  rule  of 
estoppel  as  an  element  affecting  its  disposition. 

In  Paper  Works  v.  Willett,  1  Robertson  (N.  Y.  Sup.),  131,  it  is  held 
that  formal  defects  in  proceedings  to  organize  a  corporation  are  not 
available  to  defeat  an  action  brought  b}*  a  corporation  for  trespass  in 
wrongfully  taking  property  out  of  its  possession. 

See  also,  as  illustrating  the  principle  under  discussion  :  Smith  v. 
Sheeley,  12  Wall.  361 ;  Grand  Gulf  Bank  v.  Archer,  8  S.  &  M.  151, 
173  ;  Dunning  v.  R.  R.  Co.  2  Carter  (Ind.),  437;  Dannebroge  Min- 
ing Co.  v.  Ailment,  26  Cal.  286  ;  Searsburgh  Turnpike  Co.  v.  Cutler, 
6  Vt.  315  ;  Mitchett  v.  Deeds,  49  111.  416  ;  Eliz.  Academy  v.  Lindsey, 
6  Ired.  476  ;  Darst  v.  Gale,  83  111.  136  ;  Rondett  v.  Fay,  32  Cal.  354  ; 
De  Witt  v.  Hastings,  40  N.  Y.  (Superior  Court)  463 ;  Rice  v.  R.  R. 
Co.,  21  111.  93  ;  Douglas  County  \.  Bolles,  94  U.  S.  104  ;  The  Banks 


126  SOCIETY   PERUN   V.   CLEVELAND. 

v.  Poitiaux,  3  Randolph  (Va.),  136  ;  Goundie  v.  Northampton  Water 
Co.,  7  Pa.  St.  233  ;  Baker  v.  Backus,  32  111.  79  ;  Tarbell  v.  Page,  24 
111.  46;  Thornburyh  v.  R.  R.  Co.,  14  Ind.  499 ;  Tar  River  Nav. 
Co.  v.  Neal,  3  Hawks,  520 ;  Bear  Camp  River  Co.  v.  Woodman, 
2  Me.  404. 

In  Jones  v.  Dana,  24  Barb.  395,  it  was  held  that  if  a  company  has 
in  form  a  charter  authorizing  it  to  act  as  a  body  corporate,  and  is  in 
fact  in  the  exercise  of  corporate  powers  at  the  time  of  taking  a  note 
from  an  individual,  it  is,  as  to  him  and  all  third  persons,  a  corporation 
de  facto,  and  the  validity  of  its  corporate  existence  can  only  be  tested 
by  proceedings  on  behalf  of  the  people. 

In  the  case  at  bar,  the  certificate  which  was  last  filed  by  the  society 
embraced  a  full  statement  of  the  objects  of  incorporation  and  indicated 
what  the  nature  of  its  business  must  necessarily  be,  and  was  strongly 
suggestive  of  the  manner  in  which  it  must  necessarily  be  transacted ; 
and  while  it  is  not  our  purpose  to  call  in  question  the  action  of  this  court 
in  the  quo  warranto  proceedings,  we  have  no  hesitation  in  saying  that  if 
we  were  now  called  upon  to  determine  whether  the  corporate  life  of 
Society  Perun  should  be  taken,  the  question,  upon  the  facts  offered  in 
proof  at  the  trial  below,  would  not  be  free  from  doubt  and  difficulty. 
It  is  very  clear  that  the  proceedings  to  incorporate  were  colorable  ;  and 
so  far  as  this  fact  is  a  test  of  the  existence  of  a  corporation  de  facto, 
it  is  most  amply  established.  That  there  was  proof  of  user  is  mani- 
fest from  the  evidence  which  was  received  without  objection. 

That  the  judgment  of  ouster  did  not  and  could  not  have  a  retroactive 
effect  upon  the  rightgjof  the  society,  and  of  parties  who  had  dealt  with, 
itjnnno;  its  de  fac,to  existence,  is  suggested  by  the  opinion  of  Wright,  J., 
in  Ga/\.  Flesher,  33  Ohio  St.  115. 

The  evidence  which  was  offered  and  excluded  would,  if  credited, 
have  shown  Society  Perun  capable  of  holding  and  transferring  the  legal 
title  to  the  lands  in  controversy.  Walsh  v.  Barton,  24  Ohio  St.  43  ; 
Durst  v.  Gale,  83  111.  136  ;  Shewalter  v.  Pirner,  55  Mo.  218  ;  Nat. 
Bank  v.  Matthews,  98  U.  S.  628 ;  Goundie  v.  Northampton  Water 
Co.,  7  Penn.  St.  233  ;  Barrow  v.  Nashville  Turn.  Co.,  9  Humph.  304  ; 
Kelly  v.  People's  Trans.  Co.,  3  Ore.  189 ;  Bogardus  v.  Trinity 
Church,  4  Sandf.  Ch.  758. 

The  public  and  all  persons  dealing  with  this  society  were  justified  in 
assuming  that  the  certificate  filed  with  the  secretary  of  state,  and  by 
him  admitted  to  record  in  his  office,  had  been  approved  by  him,  and 
also  In-  the  attorney-general,  as  required  by  statute  (69  Ohio  L.  150), 
and  that  it  so  far  conformed  to  all  legal  requirements  that,  as  provided 
in  section  2  of  the  act  of  incorporation  (69  Ohio  L.  83),  "  a  copy, 
duly  certified  by  the  secretary  of  state,  under  the  great  seal  of  the  state 
of  Ohio,  shall  be  evidence  of  the  existence  of  such  association." 

iL-VKQIlld  seem  that  such  approval,  record,  and  certificate,  followed 
by^uninterrupted  and  unchallenged  user  for  nearly  six  years,  of  _all _of 
which  proof  wna  tendpi-pd,  would  pnnst.if.nte  n.  nnrporatmn  .da  fartn,  if 
such  a  body  \&A  under  any  circumstances,  entitled  to  legal  recognition^ 


BRADLEY   V.    REPPELL.  127 

The  highest  considerations  of  public  policy  and  fair  dealing  protest, 
against  treating  suck  an  organization  as  a  nullity,  and  all  of  its  trans- 
actions void*. 

The  principle  of  the  above  cases  is  to  be  distinguished  from  a  case 
where  a  mere  corporation  de  facto  attempts  to  assert  the  power  of  emi- 
nent domain  by  the  appropriation  of  private  property  to  public  use. 
It  has  been  held  that  the  exercise  of  this  right  (which  is  but  a  delega- 
tion of  the  sovereign  power  of  the  state),  depends  upon  the  sufficiency 
and  legal  validit}'  of  the  certificate  of  incorporation  and  public  record 
of  its  organization.  R.  R.  Co.  v.  Sullivant,  5  Ohio  St.  276  ;  Atkinson 
v.  It.  R.  Co.,  15  Ohio  St.  21. 

The  case  of  Raccoon  River  Nav.  Co.  v.  Eagle,  29  Ohio  St.  238,  is 
relied  upon  by  the  defendant  in  error.  It  was  an  action  to  recover 
upon  a  stock  subscription.  A  plea  of  nul  tiel  corporation  was  inter- 
posed. The  plaintiff  claimed  to  be  organized  under  an  act  to  authorize 
the  incorporation  of  companies  "for  the  purpose  of  improving  any 
stream  of  water  .  .  .  declared  navigable  by  any  law  of  the  state  of 
Ohio."  On  the  trial  the  plaintiff  offered  in  evidence  a  certificate 
by  which  it  appeared  that  the  company  was  formed  for  the  pur- 
pose of  improving,  etc.,  Big  Raccoon  river.  Unfortunately  there  was 
no  navigable  stream  in  Ohio  by  that  name.  No  other  testimony  was 
offered.  There  was  no  proof  of  user.  There  was  no  defect  in  the 
form  of  the  proceedings  to  incorporate,  but  an  attempt  to  organize  and 
incorporate  for  a  purpose  impossible  of  accomplishment.  There  was 
neither  a  de  jure  nor  de  facto  corporation.  Judgment  was  properly 
rendered  for  defendant. 

Tn_ft-yft1iiHing  pr^f  r>f  wbnt,  wq,a  actually  done  looking  to  the  incor- 
poration of  Society  Perun,  and  of  the  snhseqnpnt.  acts  of  user,  which 
was  offered  in  evidence,  there  was  errort  for  whu-h  the  judgment  in  ilie 
first,  enlillcd-xase  (as  well  as  that  in  the  same  plaintiff  against  Hay  et 
al.,  which  was  tried  with  it  and  involves  the  same  general  questions) 
are  reversed.  Numerous  other  questions  are  presented  by  the  volumi- 
nous records  in  these  cases,  but  as  they  all  depend  upon  the  one  cen- 
tral and  controlling  question  discussed  above,  and  as  the  disposition 
here  made  of  the  cases  must  lead  to  a  re-trial  in  the  light  of  the  prin- 
ciples indicated  in  this  opinion,  they  are  not  separately  considered. 

Judgment  reversed. 


BRADLEY  ET  ALS.  v.  REPPELL. 

October  Term,  1895.     Supreme  Court  of  Missouri,  Division  No.  I.1 

BRACE,  P.  J.  This  is  an  action  in  ejectment  in  common  form  to 
recover  the  possession  of  certain  lands  described  in  the  petition,  situate 
in  Kansas  City ;  instituted  in  the  Circuit  Court  of  Jackson  County, 

1  From  copy  of  opinion  furnished  by  Clerk  of  Supreme  Court. 


128  BRADLEY   V.   REPPELL. 

taken  thence  by  change  of  venue,  and  tried,  in  the  Circuit  Court  of 
Clay  County. 

The  answer  was  a  general  denial,  and  a  plea  of  the  statute  of  limita- 
tions as  to  a  part  of  the  land,  and  no  claim  as  to  the  remainder.  Issue 
was  joined  b}-  reply. 

On  the  trial,  at  the  close  of  the  plaintiff's  evidence,  the  court  sus- 
tained a  demurrer  to  the  evidence  as  to  the  plaintiff  T.  C.  Bradley,  and 
overruled  it  as  to  the  other  plaintiffs,  Samuel  F.  Freeman  and  the  Atlas 
Investment  Compan}*.  The  trial  then  proceeded,  and  after  all  the  evi- 
dence was  heard,  the  issue  was  submitted  to  the  juiy,  who  returned  a 
verdict  for  the  defendant.  Thereupon  plaintiffs  filed  motions  for  new 
trial  and  in  arrest  of  judgment.  The  motion  for  new  trial  coining  on 
to  be  heard,  was  sustained  and  the  verdict  set  aside  on  the  following 
grounds,  "  specified  of  record." 

"  9th.  Because  the  Court  erred  in  refusing  to  admit  as  evidence  a  certified 
copy  of  the  Warranty  Deed  dated  August  20,  1880,  from  the  West  Kansas 
City  Land  Company  to  Charles  W.  Whitehead,  which  certified  copy  was 
offered  in  evidence  by  plaintiff. 

16th.  Because  the  Court  erred  in  refusing  to  admit  as  evidence  the  certi- 
fied copy  of  the  Quit  Claim  Deed  from  the  West  Kansas  City  Land  Company 
to  Charles  W.  Whitehead,  which  is  offered  in  evidence  by  the  plaintiff." 

From  the  order  sustaining  this  motion  and  setting  aside  the  verdict, 
the  defendant  appeals. 

(1).  "By  a  Special  Act  of  the  Legislature  approved  March  14,  1859 
(Sess.  Acts,  1858,  p.  292),  The  West  Kansas  City  Land  Company 
was  incorporated  with  power  "  to  make  contracts,  sue  and  be  sued," 
and  to  "  purchase  and  hold  any  quantity  of  land  in  Kaw  township  in 
Jackson  County,  Missouri,  not  exceeding  one  thousand  acres  ;  to  lay 
the  same  off  into  parks,  squares,  and  lots,  improve,  sell  or  conve}-  the 
same  by  deed ;  to  re-purchase  and  re-convey  any  portion  of  the  same, 
when  necessaiy  in  transacting  the  legitimate  business  of  said  corn- 
pan}1  ;  and  purchase  and  hold  any  personal  propert}'  necessary  for  the 
purposes  above  indicated."  Nothing  was  said  in  the  act  either  directly 
or  indirectly  as  to  the  duration  of  the  company's  corporate  existence. 
By  the  general  law  in  force  at  the  time  this  compan}*  was  thus  incor- 
porated it  was  provided  that  "  Every  corporation,  as  such,  has  power, 
to  have  succession  by  its  corporate  name  for  the  period  limited  in  its 
charter  and  when  no  period  is  limited,  for  twenty  years."  R.  S.  1855, 
Vol.  1,  p.  369.  Sec.  1.  "And  that  upon  the  dissolution  of  any  cor- 
poration, the  president  and  directors  or  managers  of  the  affairs  of  the 
corporation  at  the  same  time  of  the  dissolution  shall  be  trustees  of 
such  corporation  with  full  power  to  settle  its  affairs."  R.  S.  1855, 
Vol.  1,  p.  375,  Cap.  34,  Sec.  24.  The  corporation  thus  chartered  was 
an  ordinary  business  corporation  whose  corporate  existence  b}*  virtue 
of  these  statutory  provisions  expired  on  the  14th  of  March,  1879, 
State  ex  rel.  vs.  Payne,  29  Mo.  468,  and  the  two  deeds  rejected  .'by  the 
court  upon  the  trial  were  executed  after  that  date  in  the  name  and 
under  the  corporate  seal  of  the  company  "  b}T  William  McCoy,  Presi- 


BRADLEY   V.    REPPELL.  129 

dent."  "Attest:  Edw.  A.  Allen,  Secretary."  The  defendant  objected 
to  the  introduction  of  these  deeds  offered  in  evidence  by  the  plaintiffs  as 
constituting  a  part  of  their  chain  of  title,  and  in  support  of  his  objec- 
tions read  in  evidence  the  Act  of  the  Legislature  aforesaid  incorporat- 
ing said  company,  and  it  was  admitted  that  said  compan}*  in  whose 
behalf  said  deeds  had  been  so  executed,  was  the  same  company  by 
said  act,  incorporated,  and  that  it  was  never  thereafter  re-incorporated. 
The  defendant's  claim  of  title  was  by  adverse  possession,  and  there  is 
not  in  the  case  any  question  of  estoppel  to  deny  the  existence  of  the 
corporation  by  reason  of  the  relation  sustained  by  the  defendant  to  the 
land  company,  or  of  any  dealings  by  him  directly  or  indirectly  with  it, 
or  any  person  connected  with,  or  representing  it.  Why  then  should 
the  defendant  be  precluded  from  showing,  by  the  law  that  gave  that  ^ 
company  its  corporate  existence,  that,  at  the  time  these  deeds  were 
made,  it  was  dead,  incapable  of  executing  a  legal  conveyance  of  the 
real  estate  in  question,  and  that  said  deeds  were  therefore  void,  and  no 
evidence  of  title?  The  answer  returned  by  the  counsel  for  plaintiffs  to 
this  question  is,  "  That  it  is  the  settjed  law  of  this  State  that  a  con- 
veyance to,  or  by  a  corporation  de  facto  can  be  assailed  on  the  ground 
of  lack  of  corporate  existence  only  by  the  State" 

This  answer  does  not  meet  the  question,  unless  it  be  assumed  that  a 
corporation  whose  corporate  existence  has  expired  by  the  terms  of  the 
law  which  created  it,  still  exists  as  a  de  facto  corporation  as  to  all  per- 
sons except  the  State,  an  assumption  that  we  think  is  not  sustained  by 
the  authorities  cited,  and  is  not  "•  the  settled  law  in  this  State."  On 
the  contrarj',  in  this  State,  as  elsewhere  unless  otherwise  provided 
by  statute,  the  law  is,  that  where  the  term  of  the  existence  of  a  cor- 
poration is  fixed  by  its  charter  or  the  general  law,  upon  the  expiration 
of  that  term,  the  corporation  becomes  ipso  facto  dissolved  ;  it  can  no  ' 
longer  act  in  a  corporate  capacity,  and  its  title  to  property  ceases.  2 
Beach  on  Private  Cor.  Sec.  780;  2  Morawetz,  Sec.  1031.  In  such  an 
event  in  this  State  the  title  to  its  property  is  by  statute  devolved  upon 
trustees  for  the  settlement  of  its  affairs  and  the  distribution  of  its 
assets.  R.  S.  1855  supra,  R.  S.  1889,  Sec.  2513  ;  and  thereafter  it  has 
no  power  to  make  a  legal  contract  or  convey  property  in  its  corporate 
name  and  capacity.  It  ceases  to  be  a  corporation,  clejure  et  de  facto, 
for  the  reason  that  there  is  no  law  in  force  authorizing  its  existence,  *~ 
and  no  lawjby  virtue  of  which  it  might  exist,  and  no  person  unless 
"estopped  T>y  his  own  action,  ought  to  be,  or  can  be  precluded  from 
showtng'tliis  fact,  apparent  on  the  face  of  the  law  itselfTwithout  the 
necessity  of  any  judicial  investigation ;  in  an  issue  involving  his  own 
personal  rights  and  interests. 

An  examination  of  the  authorities  cited  b}*  counsel  for  respondents, 
and  of  all  the  other  cases  touching  this  question,  will  show  that  it  has 
never  been  otherwise  ruled  in  this  State,  nor  elsewhere  so  far  as  we 
have  been  able  to  discover. 

The  first  case  cited  by  counsel  for  respondent  Mclndoe  vs.  St.  Louis, 
10  Mo.  576,  does  not  touch  the  question,  side,  edge,  or  bottom. 

9 


130  BRADLEY   V.    EEPPELL. 

The  cases  of  Chambers  v.  St.  Louis,  29  Mo.  543  ;  Land  v.  Coffman, 
50  Mo.  243  ;  Shewalter  v.  Pirner,  55  Mo.  218  ;  and  Conn.  Mutual  Life 
Ins.  Co.  vs.  Smith,  117  Mo.  26 ;  go  no  farther  in  the  direction  of  our 
present  inquiry  than  to  hold  that  where  an  existing  corporation  has 
power  to  acquire,  hold  and  dispose  of  land  the  question  whether  such 
corporation  has  transcended  the  limits  of  such  power  in  respect  thereto 
can  only  be  raised  and  determined  in  a  direct  proceeding  by  the  State 
against  the  corporation.  But  this  falls  far  short  of  the  question  here  ; 
which  goes  to  the  fact  of  the  existence  of  the  corporation,  conceded  in 
these  cases. 

It  is  also  well  settled  law  that  one  who  has  contracted  with  an 
organization  as  a  corporation,  in  its  corporate  name,  is  estopped 
from  denying  the  existence  of  such  corporation  at  the  time  of  making 
the  contract,  or  of  alleging  any  defect  in  its  organization  affecting  its 
capacity  to  contract  or  sue  as  a  corporation  upon  such  contract. 
4  Thorn  p.  Corp.  5275  ;  4  Am.  &  Eng.  Encycl.  of  law,  p.  198  and  cases 
cited  note  1,  p.  199  ;  2  Morawetz  Priv.  Corp.  Sec.  750,  753  ;  Beach 
on  Corp.,  Sec.  13.  And  so  it  has  been  ruled  in  this  state  in  many 
cases,  including  those  next  cited  in  the  brief  of  counsel  for  respond- 
ent. Ohio  &  M.  R  R.  Co.  vs.  McPherson,  35  Mo.  13  ;  Farmers  & 
Merchants  Ins.  Co.  v.  Needles,  52  Mo.  18  ;  City  of  St.  Louis  v.  Shield, 
62  Mo.  247 ;  Stoutimore  vs.  Clark,  70  Mo.  471  ;  Studebaker  Bros.  v. 
Montgomeiy,  74  Mo.  101  ;  St.  Louis  Gas  Light  Co.  v.  City  of  St.  Louis, 
84  Mo.  302,  affirming  11  Mo.  App.  55  ;  Broadwell  v.  Merritt,  87  Mo. 
95;  G randy  Mining  Co.  vs.  Richards,  95  Mo.  106.  Of  course  such 
estoppel  extends  as  well  to  the  priuies  of;  as  to  the  parties  to  such 
contracts.  Hasenritter  v.  Hirchhoffer,  79  Mo.  239  ;  Ragan  v.  Mc- 
Elroy,  98  Mo.  349  ;  Broadwell  v.  Merritt,  87  Mo.  95 ;  Reinhard  v. 
Va.  Lead  Mining  Co.  107  Mo.  616.  The  rulings  in  none  of  these  cases, 
however,  support  the  contention  that  the  deeds  should  have  been  ad- 
mitted in  evidence  in  the  case  in  hand,  in  which,  as  has  been  already 
seen,  there  is  no  question  of  estoppel. 

Nor  do  the  cases  of  Finch  v.  Ullman,  105  Mo.  255,  or  Crenshaw 
v.  Ullman,  113  Mo.  633,  cited  by  plaintiff's  counsel;  in  which  it 
was  ruled  where  there  was  a  law  authorizing  the  existence  of  a  cor- 
poration, at  the  time  when  the  organization  assumed  to  act,  and  did 
/  act  as  such  corporation,  —  that  its  corporate  existence  as  to  such  act 
could  not  be  called  in  question  in  a  collateral  proceeding ;  sustain 
respondent's  contention.  It  is  true  in  these  and  other  cases,  it  is 
sometimes  broadly  stated  as  settled  law,  in  substance,  "  that  a  trans- 
fer of  property  to  or  by  a  corporation  de  facto  will  be  binding  and 
valid  as  against  all  parties  except  the  state,"  but  this  is  simply  a  re- 
statement in  another  form  of  the  proposition  ruled.  It  implies  that 
the  case  is  one  in  which  a  corporation  ma}T  by  law  exist,  for  there  can 
>•  be  no  corporation  de  facto  when  there  cannot  be  a  corporation  de 
jure.  1  Beach  on  Priv.  Corp.  Sec.  13;  4  Thomp.  Corp.  Sec.  523- 
5275  ;  at  least  as  to  any  person  who  is  not  precluded  by  his  own 
,  action,  or  that  of  those  under  whom  he  claims,  from  questioning  its 


BRADLEY   V.   REPPELL.  131 

existence.  Whatever  may  be  the  rule  as  to  these,  as  to  all  other  per- 
sons, there  must  be  at  least  color  of  law  for  its  corporate  existence  to 
preclude  such  inquhy,  and  it  would  seem  to  go  without  saying,  that 
a  law  which  gives  existence  to  a  corporation  for  a  certain  number  of 
years  at  the  end  of  which  time  it  must  surely  die,  cannot  give  color 
to  its  corporate  existence  after  the  date  of  its  death  as  decreed  by  the 
terms  of  that  same  law. 

Judge  Thompson  in  his  recent  work  on  Private  Corporations  says : 

"  There  is  much  judicial  authority  for  the  proposition  that  where  a  corpora- 
tion is  brought  to  an  end  by  the  lapse  of  time,  that  is,  by  the  expiration  of 
the  distinct  limitation  of  its  life  in  its  charter,  any  further  exercise  of  its  cor- 
porate powers,  may  be  questioned  collaterally.  The  governing  principle  here 
is  that  upon  the  expiration  of  the  time  limited  by  the  charter  for  the  existence 
of  the  corporation  its  dissolution  is  complete.  '  The  dissolution  in  such  case,' 
it  has  been  said,  '  is  declared  by  the  act  of  the  Legislature  itself.'  The  lim- 
ited time  of  existence  has  expired,  and  no  judicial  determination  of  that  fact 
is  requisite.  The  corporation  is  de  facto  dead."  Thomp.  Corp.  Sec.  530,  cit- 
ing in  support  of  the  text,  People  v.  Manhatten  Co.,  9  Wend.  N.  Y.  351 ;  Mor- 
gan v.  Lawrenceburg  Ins.  Co.,  3  Tiid.  285;  Wilson  v.  Tesson,  12  Ind.  285; 
Grand  Rapids  Bridge  Co.  v.  Prague,  35  Mich.  400;  Dobson  v.  Simon  ton,  86 
N.  C.  492;  Sturges  v.  Vanderbilt,  73  N.  Y.  384;  Bank  of  U.  S.  v.  Mclaugh- 
lin, 2  Cranch  C.  C.  (U.  S.)  20.  Further  on  in  the  same  section,  however,  he 
says:  "On  the  other  hand  it  has  been  ruled  in  Missouri,  that  the  question 
whether  the  charter  of  a  corporation  has  expired  by  limitation  of  time,  can  be 
adjudicated  only  in  a  direct  proceeding  by  the  State,  that  such  a  defense  can- 
not be  set  up  collaterally  in  an  action  by  the  corporation,"  —  citing  the  single 
case  of  St.  Louis  Gas  Light  Co.  v.  City  of  St.  Louis,  84  Mo.  202,  affirming  11 
Mo.  App.  55. 

In  Sturges  v.  Vanderbilt,  supra,  decided  in  1878,  RAPALLO  J.  said : 
"  It  is  further  claimed  that  until  a  corporation  is  declared  dissolved  by  Ju- 
dicial decree,  creditors  may  proceed  against  it  by  its  corporate  name,  and  that 
it  remains  in  esse.  until  formally  adjudged  dissolved.  All  the  cases  cited  in 
support  of  this  proposition  relate  to  a  dissolution  in  consequence  of  insolvency, 
or  non  user,  or  mis-user  of  the  corporate  franchises,  or  some  other  cause  of 
forfeiture.  In  such  cases  it  is  well  settled  that  the  dissolution  does  not  take 
effect  until  judicially  declared.  But  the  principle  upon  which  that  class  of 
cases  rests,  is  not  applicable  to  a  dissolution  by  expiration  of  the  charter. 
The  dissolution  in  such  case  is  declared  by  the  act  of  the  Legislature  itself. 
The  limited  time  of  existence  has  expired,  and  no  judicial  determination  of 
that  fact  is  requisite.  The  corporation  is  de  facto  dead.  People  v.  Walker,  17 
N.  Y.  503;  Greely  v.  Smith,  3  Story  C.  C.  R.  658.  Where  the  charter  of  a 
corporation  is  annulled  by  act  of  the  legislature  the  corporation  is  extinct  and 
no  judgment  can  be  rendered  against  it  (Mumma  v.  Potomac  Co.,  8  Pet.  286; 
Merrill  v.  Suffolk  Bank,  31  Me.  57).  We  have  been  referred  to  no  authority 
holding  a  contrary  doctrine." 

After  a  very  extended  search  for,  and  a  careful  examination  of,  the 
cases,  both  before  and  since  the  date  of  this  decision,  we  also  have 
been  unable  to  find  any  authority  contrary  of  this  doctrine  ;  unless  it 
can  be  found  in  the  Gas  Light  Co.  case  above  cited  by  Judge  Thomp- 
son or  in  Miller  v.  Coal  Co.  81  W.  Va.  836  also  cited  by  him,  and  to 
these  cases  our  attention  will  now  be  directed. 


_     _  0 

-XL, 


132  BE  ABLE  Y   V.   KEPPELL. 

In  St.  Louis  Gas  Light  Co.  v.  City  of  St.  Louis,  which  was  an  action 
1>3"  a  corporation  upon  a  written  contract  entered  into  between  plaintiff 
and  defendant,  the  defendant  claimed  that  the  plaintiff  could  not  main- 
tain its  action  thereon,  because  its  corporate  life  had  expired  before 
the  making  of  the  contract  and  the  institution  of  the  suit.  Upon 
this  claim  the  court  ruled,  that,  the  defendant  having  b}*  entering  into 
the  contract  with  the  plaintiff  admitted  the  capacity  of  the  plaintiff  to 
enter  into  a  binding  obligation  as  a  corporation,  the  defendant  was 
estopped  to  deny  plaintiff's  corporate  existence,  when  sued  upon  a 
promise  contained  in  such  contract.  After  having  by  this  ruling  fully 
covered  the  point  in  issue,  Judge  Thompson,  who  delivered  the  opinion 
of  the  court,  in  the  same  connection,  closed  this  paragraph  of  his 
opinion  by  adding  the  following  dicta:  "Whether  or  not  its  charter 
has  expired  by  limitation  is  a  question  which  cannot  be  adjudicated  in 
a  collateral  proceeding  such  as  this.  It  can  only  be  raised  in  a  direct 
proceeding  between  the  state  of  Missouri  and  the  defendant.  City  of 
St.  Louis  vs.  Shields,  62  Mo.  247,  251."  The  case  cited  by  the  learned 
judge  was  one  in  which  it  was  sought  to  draw  in  question  the  constitu- 
tional! t}'  of  an  act  incorporating  the  plaintiff,  in  which  the  court  held 
that  the  act  was  constitutional,  and  further  that  the  defendant  having 
entered  into  the  contract  with  the  city  admitted  its  corporate  capacity 
and  was  estopped  from  denying  it  in  an  action  upon  such  contract. 
While  the  latter  ruling  supports  the  ruling  in  the  case  in  which  it  is 
cited  by  Judge  Thompson,  and  is  in  harmony  with  all  the  cases,  it 
does  not  support  his  dicta  therein,  that  the  question  whether  the  char- 
ter of  the  corporation  has  expired  by  limitation  u  can  only  be  raised  in 
a  direct  proceeding  between  the  State  of  Missouri  and  the  defendant" 
The  dicta  being,  then,  obiter,  to  the  case  then  in  hand,  and  unsup- 
ported by  the  case  cited  for  it,  is  not  to  be  regarded  as  authorit}'.  In 
the  case  of  Miller  y.  Coal  Co.  31  West.  Va.  836,  it  was  held,  under  the 
statute  of  that  state,  providing,  in  effect,  that  when  a  corporation  shall 
expire  or  be  dissolved,  suits  ma}'  be  brought,  continued  or  defended,  prop- 
ert}r  convej'ed,  and  all  lawful  acts  be  done  in  the  corporate  name  in  the 
like  manner  and  with  like  effect  as  before  such  dissolution  or  expiration 
so  far  as  is  necessary  to  wind  up  its  affairs  :  That,  a  corporation  con- 
tinuing in  business,  and  committing  a  tort  after  the  expiration  of  the  term 
of  its  existence,  as  provided  by  its  charter,  was  precluded  from  setting 
up  the  expiration  of  its  corporate  existence  as  so  provided  in  an  action 
against  it  by  the  person  injured  by  such  tort.  Here  we  have  a  law  by 
which  the  corporation  might  exist  for  certain  purposes  after  its  charter 
term  had  expired,  and  a  state  of  facts  which  precluded  the  corporation 
from  denying  its  existence  ;  in  other  words  :  law  for  the  existence  of  the 
corporation,  and  an  estoppel  to  deny  it.  These  two  elements  are  alike 
wanting  in  the  proposition  of  the  dicta  of  Judge  Thompson,  and  in  the 
facts  of  the  case  under  consideration,  and  this  West.  Va.  case,  no  more 
than  the  case  of  the  St.  Louis  Gas  Light  Co.  v.  St.  Louis,  1 1  Mo.  55  (the 
ruling  in  which,  but  not  the  dicta,  was  approved  in  84  Mo.  202)  is  author- 
ity for  his  proposition  or  the  respondent's  contention  in  the  case  in  hand. 


BRADLEY   V.   REPPELL.  133 

We  are  cited  by  counsel  for  respondent  to  one  other  case,  which  has 
not  yet  been  noticed,  the  case  of  the  Catholic  Church  v.  Tobein,  82 
Mo.  418,  in  which  it  was  held  that  the  plaintiff  suing  as  a  corporation 
acquired  no  right  to  property  devised  to  an  unincorporated  organiza- 
tion of  the  same  name,  by  a  will  which  took  effect  before  the  plaintiff 
was  incorporated. 

It  cannot  be  seen  how  this  case  can  in  any  way  support  the  re- 
spondent's contention.  On  the  contrary  the  ruling  could  have  been 
made  only  upon  an  inquiry  and  finding  that  the  alleged  corporation 
was  non-existent  at  the  time  the  will  took  effect.  It  was  non-existent 
then  because  there  was  no  law  authorizing  its  existence.  If  inquiry 
could  be  legitimately  made  in  that  case  whether  there  was  an}-  law  in 
force  authorizing  the  existence  of  that  corporation,  why  can  not  a  like 
inquiry  be  made  in  the  present  case?  The  defendant  was  not  pre- 
cluded from  making  such  inquiry  by  any  act  of  his  own,  or  of  any 
other  person  under  whom  he  claimed.  He  did  not  propose  to  bring  in 
question  the  validity  of  any  law,  authorizing  the  existence  of  the  cor- 
poration at  the  time  these  deeds  were  made,  or  the  regularit}-  or 
validity  of  the  corporation  organized  under  such  a  law,  or  the  validity 
of  any  of  the  acts  of  such  corporation  to  determine  which  would  re- 
quire judicial  investigation ;  but  simply  to  show  by  the  law  which  once 
had  given  corporate  existence  to  the  West  Kansas  Cit}-  Land  Company 
that,  at  the  time  these  deeds  purport  to  have  been  executed,  that  cor- 
poration had  ceased  to  exist,  and  could  not  have  executed  them.  Upon 
no  principle  of  law  with  which  we  are  familiar  can  he  be  precluded 
from  so  doing,  and  we  think  no  well-considered  case  can  be  found,  that 
properly  understood,  gives  support  to  a  ruling  to  that  effect.  We  have 
been  speaking  of  the  law  of  the  compan}''s  existence  as  a  unit,  for  we 
fail  to  discover  how  the  fact  that  the  limit  of  the  term  of  existence, 
being  contained  in  the  general  law,  and  not  in  the  special  Act,  can  in 
an}-  way  affect  the  principle  we  have  been  discussing.  The  general 
law  became  a  part  of  the  charter  of  the  compan}-  at  the  moment  of  its 
creation,  and  must  be  read  into  it,  the  same  as  if  it  had  been  written 
therein.  It  follows  from  what  has  been  said  that  the  trial  court  com- 
mitted [no]  error  in  rejecting  the  deeds  aforesaid  when  offered  in  evi- 
dence by  the  plaintiffs,  and  that  it  did  commit  error  in  setting  aside 
the  verdict  for  defendant,  and  granting  a  new  trial  on  the  ground  that 
it  did  commit  error  in  refusing  to  admit  said  deeds  in  evidence. 

We  can  review  cases  only  upon  the  record  made  b}'  the  trial  court, 
authenticated  to  us  in  the  manner  provided  b}-  law,  and  having  thus 
reviewed  this  case  and  found  that  the  trial  court  committed  error  in 
setting  aside  the  verdict  and  granting  a  new  trial  for  the  reasons  speci- 
fied of  record,  and  no  other  ground  for  such  action  appearing  upon  the 
record  thereof  before  us,  the  same  is  reversed  and  set  aside  and  the 
cause  will  be  remanded  to  the  circuit  court  with  directions  to  enter  up 
judgment  in  accordance  with  the  verdict.  All  concur. 


134  SLOCUM   V.   PROVIDENCE   STEAM   AND   GAS   PIPE   CO. 

PER  CURIAM  :  The  foregoing  opinion  handed  down  in  Division  No.  1, 
is  adopted  as  the  opinion  of  the  Court  in  Bane.  GANTT,  SHERWOOD, 
MACFARLANE,  and  BURGESS,  JJ.,  concurring  with  BRACE,  C.  J.,  therein. 
BARCLAY  and  ROBINSON,  JJ.,  dissenting.  Judgment  will  therefore  be 
entered  as  directed  in  the  opinion. 


SLOCUM  v.  PROVIDENCE  STEAM  AND  GAS  PIPE  CO. 

1870.  10  Rhode  Island,  112.1 

SLOCUM  v.   WARREN. 

1871.  10  Rhode  Island,  116.  * 

BILLS  in  equity,  pra}*ing  that  defendants  might  be  enjoined  from 
selling  plaintiff's  land  under  executions  recovered  by  them  against  the 
American  Steam  and  Gas  Pipe  Co.  The  plaintiff  was  found  by  the 
Court  to  be  a  stockholder  in  the  latter  Company.  Chapter  128,  Rev. 
Stat.,  provides  that  every  manufacturing  company  shall  annually  file  a 
certain  certificate ;  and  that,  if  any  of  said  companies  shall  fail  so  to 
do,  all  the  stockholders  of  said  company  shall  be  jointly  and  severally 
liable  for  all  the  debts  of  the  company  then  existing.  It  appeared  that 
one,  at  least,  of  the  creditors,  Elizabeth  Warren,  made  a  loan  to  the 
Company,  relying  for  repayment  not  only  upon  the  credit  of  the  Com- 
pany, but  also  upon  the  personal  liability  of  the  stockholders,  and  of 
the  plaintiff  especially  as  one  of  them.  Plaintiff  contends  that  he  is 
not  subject  to  any  such  liability,  for  the  reason  that  the  American 
Steam  and  Gas  Pipe  Company  never  had  any  legal  existence  as  a 
corporation. 

Bradley  and  John  Eddy,  for  plaintiff. 

B.  N.  &  S.  S.  Lapham,  James  Tillinghast  and  Cobb,  for  defendants. 

DURFEE,  J.  [in  Slocum  v.  Providence  &c.  Co.].  .  .  .  The  charter, 
or  act  of  incorporation,  for  the  American  Steam  and  Gas  Pipe  Com- 
pany, was  granted  or  passed  in  1867,  the  capital  named  in  the  charter 
or  act  being  seventy-five  thousand  dollai's.  At  that  time,  there  was  in 
force  in  the  state  a  public  statute  which  provided  that  no  act  of  incor- 
poration granted  after  the  passage  thereof,  "  for  any  other  than  for 
religious,  literaiy,  charitable,  or  cemetery  purposes,  or  for  a  military  or 
fire  company,  shall  take  effect  until  the  persons  therein  incorporated 
shall  have  paid  to  the  general  treasurer  the  sum  of  one  hundred  dol- 
lars, if  the  capital  limited  by  such  act  of  incorporation  is  the  sum  or 

1  Statement  abridged.    Only  portions  of  the  opinions  are  given.  —  ED. 


SLOCUM  V.   PROVIDENCE   STEAM   AND   GAS   PIPE   CO.  135 

any  less  sum  than  one  hundred  thousand  dollars."  The  hundred  dol- 
lars, required  by  this  statute,  was  not  paid  for  the  American  Steam  and 
Gas  Pipe  Compamvand  consequently,  their  act  of  incorporation  never 
went  into  effect,  if  it  is  to  be  construed  as  passed  subject  to  the  statute. 
We  think  it  is  to  be  so  construed,  there  being  no  clause  of  the  act 
excepting  it  out  of  the  operation  of  the  statute.  See  The  Union 
Horse  Shoe  Works  v.  Lewis,  1  Abbott  U.  S.  518. 

The  defendants  contend  that,  even  if  the  act  has  never  gone  into 
effect,  the  existence  of  the  compan}'  as  a  corporation  cannot  be  ques- 
tioned in  a  collateral  proceeding.  It  is  undoubtedly  the  rule  that,  if  a 
charter  has  once  been  duly  granted  and  accepted,  the  state  alone  can 
enforce  a  forfeiture  of  the  charter  for  an}'  violation  thereof,  or  failure 
to  comply  with  its  considerations  on  the  part  of  the  corporation  ;  and 
that,  until  the  state  sees  fit  to  enforce  the  forfeiture,  the  corporation  is 
to  be  recognized  as  legally  existing  in  all  collateral  proceedings.  But 
here,  the  act  of  incorporation  being  inoperative,  there  never  was  any 
corporation  to  incur  a  forfeiture,  or  any  charter  to  be  forfeited.  We 
know  of  no  rule  which  precludes  inquiry  into  the  question,  whether  a 
company  which  assumes  to  act  as  a  corporation  has  ever  been  incorpo- 
rated, in  any  case,  in  the  absence  of  any  matter  of  estoppel  to  prevent 
the  inquiry. 

But  the  plaintiff,  in  order  to  have  the  relief  which  he  seeks,  ought 
to  satisfy  us,  not  only  that  his  company  is  not  a  corporation,  but  also 
that  he  is  entitled  to  show  the  fact  as  against  its  creditors.  We  as- 
sume, as  we  think  the  bills  warrant  us  in  assuming,  that  the  plaintiff 
is  a  stockholder  in  the  American  Steam  and  Gas  Pipe  Compau}-,  though 
he  has  done  nothing  as  such,  except  hold  his  stock.  The  question  then 
is,  whether  a  stockholder,  who  does  nothing  but  hold  his  stock,  is  es- 
topped, when  pursued  by  a  creditor  of*  the  supposed  corporation,  from 
denying  its  existence.  We  think  he  is  so  estopped.  By  becoming 
and  continuing  a  stockholder,  he  holds  himself  out  as  a  corporator,  and 
so  contributes  to  the  belief  that  the  company  with  which  he  is  associ- 
ated is  a  corporation.  To  permit  a  person  who  has  so  held  himself 
out  to  say  that  he  is  not  a  corporator,  when  legally  pursued  as  such, 
would  be  to  permit  him  to  take  advantage  of  his  own  wrong.  He  is 
like  a  person  who,  having  held  himself  out  or  suffered  himself  to  be 
held  out  as  a  copartner,  may  be  charged  with  the  copartnership  debts. 
Or  he  is  like  a  person  who,  without  authorit}",  as  executor  or  adminis- 
trator, intermeddles  with  the  property  of  a  decedent,  and  so  becomes 
chargeable  as  an  executor  in  his  own  wrong.  The  plaintiff  having 
assumed  the  character  of  a  corporator,  where  he  is  sought  to  be  charged 
as  such,  ought  not  to  be  heard  to  say  that  the  character  was  falsel}-  or 
unlawfully  assumed.  The  fact  that  lie  was  not  active  in  the  business  of 
the  companj-  cannot  avail  him ;  for  it  is  the  assumption  to  hold  the 
stock  as  if  he  were  a  corporator,  which  makes  the  mischief.  It  might 
easily  happen  that  the  stockholder,  whose  name  contributed  most  to 
the  credit  of  the  supposed  corporation,  was  least  active  in  its  busi- 


136  SLOCUM   v.   WARREN. 

ness,  and  it  would  be  plainly  unjust  to  exempt  him  from  liability  to  the 
creditors,  merely  because  of  his  inactivity. 

We  are  aware  that  in  Utley  v.  Union  Tool  Company,  11  Gray,  139, 
the  Supreme  Court  of  Massachusetts  exempted  a  stockholder  from  lia- 
bility to  a  creditor  of  a  supposed  corporation,  upon  proof  that  the 
corporation  had  never  legally  come  into  being  under  the  statute  of 
that  state.  But  it  does  not  appear  that  in  that  case  the  question  of 
estoppel  was  raised  by  the  counsel  or  considered  by  the  court.  We 
should  agree  entirely  with  the  Supreme  Court  of  Massachusetts  in  their 
decision  in  any  case  in  which  the  estoppel  would  be  inapplicable. 

DCRFEE,  J.  [in  Slocum  v.  Warren].  ...  We  decided  in  the  former 
case  that  having,  by  becoming  a  stockholder,  helped  to  hold  the  com- 
pany out  as  a  corporation,  he  could  not  be  permitted  to  say,  when 
pursued  by  a  creditor  of  the  company,  that  he  and  his  associates  or 
predecessors  had  omitted  to  do  an  act  which  they  ought  to  have  done 
before  organizing  as  a  corporation,  and  that  in  consequence  of  this 
delinquency  the  company  was  not  (what  it  purported  to  be)  a  legally 
established  corporation.  The  plaintiff  maintains  that  this  decision  was 
erroneous,  and  in  support  of  his  view,  relies  especially  upon  the  cases 
of  Hudson  v.  Carman,  41  Maine,  84 ;  Unity  Insurance  Company  v. 
Cram,  43  N.  H.  636;  Utley  v.  Union  Tool  Company,  11  Gray,  139  ; 
and  Gardner  v.  Post  et  al.  43  Pa.  St.  19.  We  propose  to  consider 
these  and  some  of  the  other  cases  bearing  upon  the  question,  somewhat 
in  detail. 

[After  commenting  on  various  authorities,  the  opinion  proceeds.] 

The  plaintiff  also  cites  cases  in  which  it  has  been  held  that  a  corpora- 
tion duly  established  as  such  is  not  estopped  from  denying  its  liability 
where  there  is  a  want  of  power  to  contract  the  liability,  the  reason 
being,  he  says,  that  otherwise  the  powers  of  the  corporation  might  be 
indefinitely  enlarged ;  and  he  argues  that,  in  the  case  at  bar,  the  doc- 
trine of  estoppel  is  still  less  applicable,  inasmuch  as  the  company  was 
acting  not  merely  in  excess  of  its  corporate  powers,  but  without  any 
corporate  power  whatever.  But  in  the  case  at  bar,  the  defect  of  power 
exists  not  by  reason  of  any  insufficiency  of  the  grant,  but  by  reason 
solely  of  a  delinquency  on  the  part  of  the  grantees  of  the  power ;  and 
the  estoppel,  if  applied,  would  be  applied  not  to  prevent  an  appeal  to 
the  charter  to  show  a  want  of  authority,  but  to  prevent  the  intro- 
.,  duction  of  evidence  by  the  company  or  its  members  to  prove  their  own 
delinquenc}'.  We  do  not  think  that  in  such  a  case  there  should  be  any 
hesitation  to  apply  the  doctrine  of  estoppel  from  fear  that  it  would  lead 
to  an  indefinite  enlargement  of  the  powers  of  the  corporation.  And 
see  Bargate  v.  Shortridge,  5  H.  L.  Cas.  297,  318  ;  Zabriskie  v  Cleve- 
land, Columbus  &  Cincinnati  Railroad  Company  et  al.  23  How.  U.  S. 
381. 

[After  citing  and  commenting  upon  other  authorities,  the  opinion 
proceeds.] 


SLOCUM  V.  WARREN.  137 

It  is  true  these  cases  are  not  precisely  like  the  case  at  bar,  but 
they  are  cases  which  illustrate  the  application  of  the  law  of  estoppel 
in  respect  to  corporations,  or  companies  acting  as  corporations,  or 
which  illustrate  to  what  extent  the  corporate  existence  of  a  company 
acting  as  a  corporation  can  be  collaterall}*  questioned.  And  we  think 
it  is  safe  to  say  upon  the  authority  of  these  cases,  that  at  least  where 
there  is  an  act  or  charter  in  existence,  under  which  a  company  by  taking 
the  proper  steps  can  become  a  corporation,  if  a  company  does  de  facto 
organize  and  hold  itself  out  as  a  corporation,  contracting  obligations  as 
such,  it  cannot,  when  sued  upon  such  obligations,  by  persons  who  have 
dealt  with  it  as  such  in  good  faith,  be  permitted  to  avoid  a  corporate 
liabilit}'  thereon,  by  setting  up  that  it  has  not  taken  all  the  steps  pre- 
scribed as  conditions  precedent  to  its  legal  existence  as  a  corporation. 
If  this  be  so  in  regard  to  the  company  as  a  whole,  we  do  not  see  why 
it  is  not  equally  so  in  regard  to  each  member  of  the  company  individu- 
ally, in  so  far  as  membership  imports  an  individual  liabilit}'.  In  this 
case,  it  is  said  there  was  no  act  or  charter ;  but  in  our  opinion  there 
was  a  charter  duty  granted  by  the  legislature,  subject  only  to  a  condi- 
tion that  it  should  not  take  effect  until  a  certain  act  should  be  per- 
formed ;  but  inasmuch  as  this  act  could  have  been  performed,  as  it 
ought  to  have  been  performed,  by  the  grantees  of  the  charter  before 
their  organization  as  a  corporation,  the  case  does  not,  in  our  view, 
substantially  differ  from  cases  which  are  clearly  within  the  rule  above 
stated.  Indeed  it  is  frequently  the  case  that  a  charter  is  granted  sub- 
ject to  an  implied  condition,  that  the  grant  shall  not  take  effect  un- 
til it  has  been  duly  accepted ;  and  yet,  as  we  have  seen,  the  doctrine 
of  estoppel  may  be  applied  to  prevent  the  want  of  such  an  acceptance 
from  operating  to  defeat  a  just  claim.  Camp  \.  Byrne,  supra;  and 
see  Tobacco  Pipe  Makers'  Co.  v.  Woodroffe,  8  D.  &  R.  30,  cited  in 
Abbott's  Dig.  Law  of  Corp.  p.  331,  §  23.  In  this  case  the  company 
had  only  to  pay  into  the  treasuiy  of  the  state  one  hundred  dollars, 
and  all  would  have  been  right.  When  it  organized  as  a  corporation, 
and  from  year  to  year  continued  doing  business  as  such,  it  as  much  as 
said,  and  each  one  of  the  stockholders  as  much  as  said,  that  that  sum 
had  been  paid  ;  and  now  neither  the  company  nor  an}-  one  of  the  stock- 
holders ought  to  be  heard  to  assert  the  contrary  in  order  to  escape  any 
liability  to  which  he  or  it  would  have  been  subject  if  the  payment  had 
been  duly  made. 

This  decision  is  doubtless  a  hard  decision  for  the  plaintiff,  and  we 
ver}-  much  regret  that  his  situation  is  such  that  he  is  so  severely  af- 
fected by  it.  But  hard  as  the  decision  is  for  the  plaintiff,  it  only  sub- 
jects him  to  the  liability  to  which  he  would  have  been  subjected  if  the 
tax  due  the  state  had  been  paid,  as  it  ought  to  have  been  paid,  and 
therefore  only  to  the  liability  which,  as  an  honest  man,  he  must  be 
presumed  to  have  intended  to  incur  when  he  connected  himself  with 
the  compam*.  [Plaintiff" sprayer  denied.] 


138  NARRAGANSETT   BANK  V.   ATLANTIC   SILK   CO. 


NARRAGANSETT  BANK  v.   ATLANTIC   SILK   CO. 

1841.     3  Metcalf,  287.1 

SHAW,  C.  J.  The  first  of  these  cases  was  assumpsit  on  a  bill  of  ex- 
change, drawn  on  the  company  at  four  months'  date,  and  accepted  by 
Samuel  B.  Tuck,  treasurer.  This  company  was  incorporated  as  a  man- 
ufacturing corporation  by  St.  1836,  c.  108.  The  defendants  contended, 
that  in  order  to  recover  against  the  defendant  corporation  it  was  in- 
cumbent on  the  plaintiffs  to  prove  that  the  compan}-  had  complied  with 
the  provisions  of  the  Rev.  Sts.  c.  38,  §§  4,  9,  and  c.  44,  §  3,  regula- 
ting the  organization  of  manufacturing  corporations.  These  provisions 
require  them  to  choose  a  clerk  and  treasurer ;  that  the  clerk  shall  be 
sworn,  and  shall  keep  a  record  of  votes ;  that  the  capital  stock  shall 
be  divided  into  shares ;  that  the  first  meeting  shall  be  called  b}*  a  pre- 
scribed form  of  notice,  &c.  The  court  are  of  opinion,  that  this  argu- 
ment of  the  defendants  proceeds  upon  an  erroneous  view  of  the  law ; 
especiall}'  in  cases,  where  a  part}",  who  is  a  stranger,  and  not  pre- 
sumed to  have  access  to  the  books,  and  to  have  notice  of  the  proceed- 
ings of  a  corporation,  is  proceeding  to  recover  against  a  company 
acting  as  a  corporation.  Many  of  the  requisitions  of  the  statutes 
referred  to  are  directory  to  the  corporation,  its  officers  and  members, 
and  are  not  conditions  precedent  to  the  existence  and  capacity  of  the 
corporation  to  contract. 

But  were  it  necessary  to  prove  the  regular  organization  of  the  corpo- 
ration, the  objection  would  come  with  an  ill  grace  from  the  defendants, 
and  under  the  circumstances  must  be  deemed  untenable.  It  is  the 
duty  of  such  corporations  to  keep  records ;  the  primary  and  only  regu- 
lar evidence  of  their  organization  is  legally  presumed  to  be  in  their 
records  and  the  defendants  decline  producing  those  records,  on  notice, 
without  assigning  any  reason.  The  maxim  of  law  is,  that  all  things 
shall  be  presumed  to  have  been  rightly  and  correct!}'  done,  until  the 
contrary  is  proved.  This  maxim  is  stated  and  explained,  and  many 
instances  given  of  its  application  to  corporations,  and  to  acts  and 
doings  of  their  members,  officers  and  agents,  in  Bank  of  U.  States  v. 
Dandridge,  12  Wheat.  70.  As  the  corporation  could  not  proceed  law- 
full}",  until  duly  organized,  and  as  they  did  proceed  to  act  as  a  corpora- 
-  tion,  this  presumption  has  its  effect.  The  defendants  have  the  records, 
which  prove  such  organization,  if  it  took  place,  and  withhold  them. 
This  maxim  under  these  circumstances,  would  go  far  to  establish  the 
actual  and  regular  organization  of  the  defendant  corporation. 

But  the  court  are  of  opinion,  that  in  an  action  against  a  corporation, 
it  is  not  incumbent  on  the  plaintiff  to  prove  that  the  defendants  have 
complied  with  the  requisitions  of  the  statutes,  where  they  are  not  in 

1  Statement,  and  part  of  opinion,  omitted.  — ED. 


NARRAGANSETT   BANK  V.   ATLANTIC   SILK   CO.  139 

terms,  or  by  necessaiy  or  reasonable  implication,  conditions  precedent 
to  their  existence,  or  capacity  to  do  particular  acts.  It  has  been  held 
that  the  existence  of  a  corporation,  and  of  course  its  organization, 
may  be  proved  by  reputation,  and  by  its  actual  use,  for  a  length  of 
time,  of  the  powers  and  privileges  of  a  corporation.  Dillingham  \. 
Snow,  5  Mass.  547.  Stockbridge  v.  West  Stockbridge,  12  Mass.  400. 
In  regard  to  manufacturing  corporations,  which  are  of  more  recent 
origin  in  this  Commonwealth,  it  is  in  general  sufficient  to  give  in  evi- 
dence the  act  of  incorporation  duly  authenticated,1  and  the  actual  use 
of  the  powers  and  privileges  of  an  incorporated  compan}-,  under  the 
name  designated  in  the  act  of  incorporation.  Sank  of  U.  States  v. 
Dandridge,  12  Wheat.  64.  Uiica  Ins.  Co.  v.  Tillman,  1  Wend.  555. 
Uiica  Ins.  Co.  v.  Cadwell,  3  Wend.  296.  Fire  Department  of  New 
York  v.  Kip,  10  Wend.  266.  These  were  cases  in  which  the  corpo- 
ration, whose  organization  was  in  question,  were  plaintiffs.  The  rule 
applies  a  fortiori  to  the  case  of  a  plaintiff  seeking  to  enforce  an  obli- 
gation against  a  corporation. 

i  And  we  think  it.  highly  necessary  to  the  purposes  of  justice,  that  the 
law  should  be  so  held^jotherwisg^  a  company  might  avail  themselves  .of 
the  powers  and  privileges  of  a  corporation^  without  subjecting  them- 
selves to  its  duties  and  obligations,  and  might  set  up  their  own  neglect 
of  duty,  or  wilful  non-compliance  with  the  requisitions  of  law,  to  dis- 
charge themselve8_oj^such  obligations.  Nor  would  this  be  the  whole 
extent  of  the  wrong  done  by  such  construction,  in  regard  to  manufac- 
turing corporations.  It  has  been  the  polic}"  of  this  Commonwealth  to 
give  a  qualified  remedy  against  the  individual  members  of  manufac- 
turing corporations,  as  collateral  security  to  their  debts  and  obligations. 
But  any  construction,  which  would  destroy  or  impair  the  obligation  of 
the  corporation,  would,  to  the  same  extent,  take  from  creditors  their 
reined}'  against  the  members. 

As  to  the  evidence  in  regard  to  the  fact  of  acting  as  a  corporation, 
it  is  stated  hereafter  in  reference  to  the  other  case.2 

Judgment  on  the  verdict  for  plaintiff '. 

1  Acts  of  incorporation  are  now  deemed   public  acts ;  Eev.  Sts.  c.  2,  §  3 ;  and 
printed  copies  of  them,  published  under  the  authority  of  the  government,  are  to  be 
admitted  as  sufficient  evidence  thereof,  in  all  courts  of  law,  &c.     Rev.  Sts.  c.  94,  §  58. 

2  [In  the  opinion  in  the  case  of  Westcott  v.  Atlantic  Silk  Co ,  heard  at  the  same 
time,  Shaw,  C.  J.,  says  :  "  The  act  of  incorporation  being  shown,  there  was  evidence 
tending  to  prove  that  the  company  went  into  operation,  established  a  factory,  and 
erected  machinery ;  .  .  ."J 


140  JONES  V.   CINCINNATI  TYPE   FOUNDRY   CO. 


JONES  v.   CINCINNATI  TYPE  FOUNDRY   CO. 

I860.     14  Indiana,  89.1 

APPEAL  from  the  Grant  Circuit  Court. 

PERKINS,  J.  —  Suit  upon  a  promissory  note. 

"  The  Cincinnati  Type  Foundry  Company ',  a  corporation,"  &c., 
"  complains  of  David  W.  Jones,  defendant,"  &c.,  upon  a  promissory 
note,  of  which  a  copy  is  set  out  thus  : 

"$279.  Indianapolis,  Indiana,  October  11,  1857. 

"  Six  months  after  date,  I  promise  to  pay  to  the  order  of  the  Cincin- 
nati Type  Foundry  Company,  two  hundred  and  seventy-nine  dollars, 
for  value  received,  without  relief  from  valuation  laws. 

David  W.  Jones" 

The  defendant  demurred  to  the  complaint.  The  demurrer  was  over- 
ruled, and  rightly. 

The  defendant  then  answered  — 

1.  That  he  was  not  indebted  to  the  plaintiffs. 

2.  That  each  and  every  allegation  of  the  complaint  was  untrue. 

3.  That  the  plaintiffs  had  not  a  legal  capacity  to  sue,  because  not  a 
corporation. 

Issue.  Trial.  The  note  constituted  all  the  evidence.  Judgment  for 
the  plaintiffs  on  the  note. 

The  appellant  contends  that  the  case  was  not  made  out  against  him, 
because  it  was  not  proved  that  the  appellees  were  a  corporation,  and 
thus  possessed  of  the  capacity  to  sue. 

The  appellees  insist  that  the  note  sued  on  is  a  contract  with  them  as 
a  corporation,  and  that  their  existence  is  thereby  admitted. 

As  a  general  proposition,  it  is  the  law  of  this  state  that  a  contract 
'with  a  party  as^a  corporation  estops  the  part}1  so  contracting  to  deny 
the  existence  of  the  corporation  at  the  time  it  was  contracted  with  as 
such.  Shappel  v.  Hubbard,  at  this  term. 

And  it  has  been  held  in  other  states  that  where  individuals  are  incor- 
porated upon  performance  of  certain  acts,  a  person  who  contracts  with 
them  by  their  corporate  name,  cannot,  in  an  action  against  him  on  the 
contract,  deny  the  performance  by  them  of  the  acts  necessaiy  to  give 
them  a  corporate  existence.  Hamtranck  v.  The  Sank  of  Edwards- 
mile,  2  Miss.  R.  169.  — Tarr  River  Navigation  Co.  v.  Neal,  3  Hawks, 
520.  See  1  U.  S.  Dig.,  593  ;  4  id.  433. 

In  New  York,  to  work  such  estoppel,  it  has  been  necessary  that  the 
contract  ^honldjitajte  that  the  party  contracted  with  was  a  corporation. 
But  this  rule  does  not  prevail  in  other  states.  It  has  not  been  acted 
upon  in  this  state. 

If  the  style  by  which  a  party  is  contracted  with  is  such  as  is  usual  in 
creating  corporations,  viz.,  naming  an  ideality,  but  disclosing  that  of 

1  Part  of  opinion  omitted.  —  ED. 


JONES  V.   CINCINNATI   TYPE   FOUNDRY   CO. 


141 


no  individual,  as  is  usual  in  the  cases  of  simple  partnerships,  it  has 
been  treated  as  prima  facie,  at  least,  indicating  a  corporate  existence. 
And  such  seems  to  have  been  the  rule  at  common  law.  Grant  on 
Corp.,  62.  Probably,  a  special  answer,  in  such  cases,  in  the  nature  of 
a  plea  in  abatement,  might,  at  the  proper  time,  be  made  available. 
See  Ang.  and  Ames  on  Corp.,  506,  507,  and  the  numerous  cases  in 
our  own  Reports. 

And  there  is  no  hardship  in  this.  The  party  executing  the  note  owes 
the  amount  of  it.  The  judgment  upon  it  in  the  suit  merges  it,  and  the 
payment  of  the  judgment  satisfies  it,  and  bars  any  other  action  against 
the  maker  for  the  monej*. 

But,  in  this  class  of  cases,  it  would  seem,  after  all,  that  the  Courts 
have  proceeded  upon  a  rule  of  evidence,  rather  than  the  strict  doctrine 
of  estoppel.  They  have  treated  the  contract  with  a  paity  b}'  a  namejm- 
plying  a  corporation^  really  asT  evidence  of  The  existence  of  a  corpora- 
tion, more_than_asan  estoppel  to  disprove  such  fact.  Urant,  in  his  late 
~tearned~work  on  Corporations,  says  :  "  Generally,  the  fact  of  an  aggre- 
gate body  being  called  by  a  name,  is,  prima  facie,  evidence  that  they 
are  incorporated,  '  for  the  name  argues  a  corporation.'  Norris  v. 
/Staps,  Hobart,  11.  But  the  Courts  take  judicial  notice  that  '•A.  J3, 
and  company '  is  not  the  name  of  a  corporation.  Rex,  v.  Harrison, 
8  T.  R.  508." 

The  doctrine  of  conclusive  estoppel  seems  more  properly  applied  to 
cases  involving  the  question  of  legality  of  organization,  where  the  fact 
of  an  existing  statute,  authorizing,  in  the  given  case,  such  corporation, 
is  known  to  the  Court,  either  by  judicial  notice  or  actual  evidence  in 
the  cause. 

In  such  cases,  where  a  party  has  contracted  with  a  bod}'  as  being 
organized  as  a  corporation  under  the  law,  he  will  be  estopped  to  dis- 
pute the  legality  of  the  organization.  See  the  cases  cited  in  the  U.  S. 
Dig.,  and  Ang.  and  Ames,  ubi  supra. 

This  doctrine  of  estoppel,  as  applied  to  contracts  with  corporations, 
needs  further  examination  ;  but  it  is  not  important  in  this  case,  and  we 
shall  not  here  pursue  it.  The  decision  of  this  case  will  rest  upon 
another  ground. 

[The  learned  Judge  then  takes  the  position  that  the  general  denial 
in  the  answer  admits  the  plaintiff's  capacity  to  sue,  and  that  the  subse- 
quent paragraph  denying  plaintiff 's  capacity  is  in  the  nature  of  a  plea 
in  abatement  and  is  inconsistent  with  such  general  denial.] 

Judgment  affirmed. 


142  STOUTIMORE   V.   CLARK. 


STOUTIMORE  v.   CLARK  ET  ALS. 
1879.     70  Missouri,  47 1.1 

APPEAL  from  Clay  Circuit  Court. 

The  action,  Stoutimore  v.  Clark,  was  brought  to  establish  a  certain 
charge  as  a  lien  upon  the  land  formerly  the  property  of  Joseph  Y. 
Clark,  now  deceased ;  and  to  obtain  a  decree  for  the  sale  of  the  land 
to  satisfy  the  charge.  By  order  of  court,  the  Missouri  City  Savings 
Bank,  and  John  Chrisman,  were  made  defendants  in  said  suit.  The 
Bank  filed  an  answer  alleging  a  lien  under  a  judgment  against  Clark, 
rendered  March  27,  1874.  This  judgment  was  founded  on  a  note  of 
said  Clark  payable  to  the  order  of  the  Missouri  City  Savings  Bank,  at 
the  office  of  said  Bank.  Chrisman  filed  an  answer  alleging  a  lien  on 
part  of  the  land  under  a  trust  deed,  executed  by  Clark  Sept.  19,  1874, 
to  secure  a  loan.  Chrisman  also  filed  a  cross  answer  to  the  answer  of  the 
Missojiri_Cjty_  Savinga_Bank,_alleging  that  saidBank  waj^  not  a  corpo- 
ration. Upon  the  trial,  to  prove  the  corporate  organization  and  exist- 
ence of  the  Bank,  a  certificate  signed  by  the  alleged  president  and 
secretary  was  offered  in  evidence.  To  the  admission  of  this  certificate 
Cbrisman  objected,  on  the  ground  that  it  did  not  comply  with  the 
statutory  requirements.  This  objection  was  sustained,  and  the  evi- 
dence was  excluded.  The  Circuit  Court  ordered  the  sale  of  the  land  ; 
and  directed  that  the  judgment  of  the  Bank  should  be  paid  out  of  the 
proceeds  before  the  claim  of  Chrisman.  Chrisman  appealed  from  an 
order  denying  his  motion  for  a  new  trial. 

D.  C.  Allen,  and  Samuel  Hardwicke,  for  appellant. 

The  doctrine  of  estoppel  does  not  apply.  Jt  takes  two  to  make  an 
estoppel.  There  must  be  a  party  estopped,  and  a  party  in  whose  favor 
the  estoppel  works.  Herman  on  Estoppel,  40,  41.  It  is  plain  from 
the  evidence  that  the  Missouri  City  Savings  Bank  never  had  a  cor- 
porate existence,  nor  a  lawful  organization  on  which  corporate  exist- 
ence could  be  based.  The  Circuit  Court  in  excluding  the  certificate 
dated  April  24th,  1869,  so  held.  Hence  there  was  no  person  in  whose 
favor  an  estoppel  could  work.  Douthitt  v.  Stinson,  63  Mo.  279.  The 
judgment  against  Clark  being  a  nullity  (because  not  rendered  in  favor 
of  any  legal  entity),  no  question  of  estoppel  arises  under  it.  Bigelow 
on  Estoppel,  21,  283  ;  Wixom  v.  Stephens,  17  Mich.  518. 

[Omitting  remainder  of  argument.] 

Simrall  &  Sandusky,  for  respondent. 

By  the  execution  of  the  note  Clark  admitted  the  corporate  existence 
of  the  Missouri  City  Savings  Bank,  and  he  was  estopped  thereafter  from 
denying  its  corporate  existence.  [Omitting  citations.]  It  was  un- 
necessary to  allege  that  plaintiff  was  a  corporation ;  and  therefore 

1  Only  so  ranch  of  the  report  is  given  as  relates  to  one  point.  —  ED. 


STOUTIMORE   V.   CLARK.  143 

unnecessary  to  prove  it.  Clark  was  not  only  estopped  by  the  execu- 
tion of  said  note  from  denying  the  corporate  existence  of  the  bank,  but 
he  was  also  estopped  by  the  judgment.  If  the  defense,  nul  tiel  corpo- 
ration, was  open  to  him  at  all,  it  should  have  been  asserted  before  the 
rendition  of  said  judgment. 

[Omitting  remainder  of  argument.] 

NORTON,  J.  .  .  . 

In  support  of  these  positions  it  is  insisted  by  counsel  that,  inasmuch 
as,  on  the  trial  of  the  cause,  the  Missouri  City  Savings  Bank  failed  to 
introduce  evidence  establishing  the  fact  that  it  was  a  corporation,  the 
said  judgment  rendered  in  its  favor  was  a  nullity  and  did  not  create  a 
lien  upon  the  real  estate  of  Clark. 

We  think  the  view  thus  taken  is  unsound.  The  note  upon  which 
said  judgment  was  rendered  is  as  follows : 

"$4,000.  MISSOURI  CITT,  July  1st,  1870. 

Four  months  after  date  we  promise  to  pay  to  the  order  of  the  Mis- 
souri City  Savings  Bank,  Four  Thousand  Dollars,  negotiable  and  pay- 
able at  the  office  of  the  Missouri  City  Savings  Bank,  Missouri  City, 
Mo.,  without  defalcation  or  discount,  for  value  received,  with  interest 
at  ten  per  cent  per  annum  from  maturity  until  paid. 

GILMER,  CLARK  &  Co. 

J.  Y.  CLARK. 

R.  G.  GILMER,  Security." 

We  think  it  clear  that  in  the  suit  instituted  by  the  bank  on  this  note 
Clark  would  not  have  been  allowed  to  deny  the  corporate  existence  of 
the  bank  for  the  reason  that  by  executing  the  note  he  admitted  the  fact 
that  it  was  a  corporation,  which  estopped  him  from  disputing  it.  This 
principle  was  distinctly  enunciated  in  the  case  of  National  Insurance 
Co.  v.  Bowman,  60  Mo.  252,  following  the  case  of  Farmers  and  Mer- 
chants Insurance  Co.  v.  Needles,  52  Mo.  17,  and  the  case  of  O.  &  M. 
jR.R.  Co.  v.  McPherson,  35  Mo.  13.  In  the  case  of  City  of  St.  Louis 
v.  Shields,  et  al.,  62  Mo.  247,  it  was  expressly  held  that  the  obligors 
on  a  bond  given  to  a  corporation  by  making  and  signing  the  instrument 
admit  the  corporate  capacity  of  the  obligee,  and  in  a  suit  on  such  bond 
cannot  plead  nul  tiel  corporation.  The  cases  cited  indisputably  estab- 
lish that  Clark,  the  obligor  in  the  note  upon  which  the  judgment  rest^ 
could  not  have  set  up  as  a  defense  that  the  bank  was  not  a  corporation, 
and  it  therefore  follows  that  the  judgment,  so  far  from  being  a  nullity 
as  counsel  contend,  was  rightful  and  proper,  and  from  the  time  of 
its  rendition  became  a  lien  on  the  real  estate  of  Clark  in  Clay  county, 
and  was  conclusive  and  binding  not  only  on  him  but  upon  all  claiming 
through  or  under  him. 

[After  discussing  the  doctrine  of  privit}*.  ]  It  thus  appearing  that 
Clark,  against  whom  the  judgment  in  favor  of  the  bank  was  rendered, 
could  not  have  prevented  its  rendition  by  disputing  the  corporate  ex- 
istence of  the  bank  it  therefore  necessarily  follows  from  the  principles 


144      CALLENDER  V.   PAINESVILLE   AND   HUDSON   RAILROAD   CO. 

above  announced  that  Chrisman,  the  beneficiary  in  the  deed  of  trust 
executed  subsequently  to  the  rendition  of  the  judgment,  and  conYey- 
ing  to  the  trustee  for  him  land  upon  which  said  judgment  had  become 
a  lien,  occupied  no  better  position  than  Clark^  The  judgment  being 
efficacious  to  create  a  lien  on  Clark's  land,  could  not  have  been  drawn 
in  question  by  Clark  on  the  ground  that  it  was  a  nullity,  because  the 
bank  was  not  a  corporation ;  nor  can  it  be  assailed  on  the  ground  by 
Chrisman,  who  became  a  privy  in  estate  by  reason  of  the  grant  made 
by  Clark  to  him  in  the  deed  of  trust  of  part  of  the  land  upon  which 
the  judgment  was  attached  as  a  lien. 

Judgment  affirmed. 


CALLENDER  v.  PAINESVILLE   &   HUDSON   RAILROAD   CO. 

I860.     II  Ohio  State,  516.1 

ERROR  to  the  Court  of  Common  Pleas  of  Cuyahoga  County. 
Reserved  in  District  Court. 

Plaintiffs  filed  petition  to  recover  debt  and  damages  claimed  under  a 
written  contract  of  defendant,  an  incorporated  company,  executed  on 
the  part  of  the  company  by  Van  R.  Humphrey,  as  its  president. 

George  W.  Steele  filed  a  motion  to  dismiss ;  stating  that  he  was  a 
member  and  secretaiy  of  the  company,  denying  the  validity  of  the  ser- 
vice of  the  summons,  and  alleging  that  said  company  is  not  a  corpora- 
tion. The  Court  of  Common  Pleas  dismissed  the  action,  holding  that, 
in  view  of  the  defects  in  the  certificate  of  organization  under  the 
general  statute,  the  defendant  was  not  a  duly  organized  corporation  or 
liable  to  be  sued  as  such. 

SUTLIFF,  J.  [After  considering  the  question  as  to  the  validitj-  of 
the  certificate,  and  intimating  that  the  only  objection  to  it  raised  by 
counsel  was  untenable.] 

But  in  this  case  the  original  petition  alleged  that  the  defendant  was 
a  corporation.  The  contract  upon  which  the  action  was  brought,  a 
•py  of  which  was  appended  to  the  petition,  purported  to  be  executed 
-by  the  dpffnd.ant,,  n.H  a  Corporation  :  and  the  motion  and  che  affidavit 
of  the  mover,  disclosed,  at  most,  only  a  defect  in  the  act  of  incorpora- 
tion. But  the  affidavit  admits  that  the  company  had  attempted  in  all 
respects  to  comply  with  the_requi8ition8  nf  thp  gtafnt.^  and  |n  fact  ob- 
tained, by  a  supposed  compliance  on  their  part,  the  acceptance  and 
record  of  their  certificate  by  the  secretarj-  of  state,  a  copy  of  which 
was  to  them  a  valid_charter,  as  they  supposed.  And  the  affiant  further 
states  that  he  had  acted  as  their  secretary  for  some  three  years,  and 

*  Only  so  much  of  the  case  is  given  as  relates  to  one  point.  —  ED. 


CALLENDER  V.   PAINESVILLE   AND   HUDSON   RAILROAD   CO.      145 

that  the  president  of  the  company  was  then  residing  at  Painesville, 
where  the  company  then  kept  its  office. 

It  thus  appears  that  the  members  of  the  company  obtained  their 
charter,  supposed  themselves  a  legally  incorporated  company,  and  had 
continued  to  hold  themselves  out,  and  to  act  as  such,  to  and  with  the 
public,  and  are  still  so  acting.  Nor  is  there  any  denial,  either  in  the 
motion  or  affidavit  of  Steele,  that  their  president,  Humphrey,  was 
not  authorized  by  himself  and  others  of  the  association,  to  execute 
said  contract  on  behalf  of  the  association,  as  an  incorporated  company. 

Under  such  circumstances,  the  members  of  the  company,  and  espe- 
cially the  officers  of  the  company,  are  estopped  to  den}-  its  existence  as  a  „ 
corporation.  However  mistaken  in  fact,  no  person,  whether  artificial  or 
natural,  is  permitted  to  so  conduct  and  represent  himself  as  to  induce 
reasonable  men,  at  his  instance,  to  act  upon  the  truth  of  such  represen- 
tations in  their  contracts  and  dealings  with  him,  and  to  then  den}-  the 
truth  of  such  representations,  to  the  prejudice  of  the  party  so  having 
relied  upon  them. 

Jjl  order  for  the  company,  or  any  member  thereof,  to  spjrgpudiate  its_ 
conduct,  and  disprove  the  truth  of  its  jiwjo^representation.  it  is  neces- 
sary for  it,  not  only  to  shew  an  honest  mistake,  but  that  such  mistaken 
representation  had   not  jpdnppd  f.hp.  adversary  party,  in  the  pyp.rcisp.  of_ 
reasonable  prudence. .on  bis  part,  to  give  the  credit,  make  the  contract. 
and   act    under   it   in  confidence   of   the   truth,   of  such  conduct  and 
representations. 

T5uT  Tn  this  case,  not  only  has  the  association  obtained  a  copy  of  the 
certificate,  its  charier  of  incorporation,  and  represented  itself  to  the 
other  part}'  to  be  a  corporation,  by  making  the  contract  in  that  capa- 
city, but  it  has  continued  to  act  in  a  corporate  capacity  down  to  the 
time  of  filing  the  motion  ;  and  the  member  so  filing  the  motion  states 
that  he  is  still  the  officer  of  the  corporation.  It  thus  appears  that,  in- 
stead of  contradicting  the  misrepresentation,  before  the  contract  was 
made,  the  company  had  not,  even  after  making  the  contract,  either  in 
conduct  or  representation,  ever  denied  their  corporate  character. 

Under  such  circumstances,  to  suffer  the  defendants  to  repudiate 
their  first  conduct,  and  deny  the  truth  of  their  representations,  by 
which  the  plaintiffs  had  been  induced  to  contract  with  them,  and  upon 
which  both  parties  had  acted,  would  be  in  contravention  of  those  prin- 
ciples of  equity  upon  which  the  doctrine  of  estoppel  rests,  and  its 
operative  effect  to  prevent  fraud  depends. 

We  are,  therefore,  clearly  of  opinion  that,  at  the  time  of  the  hearing 
of  the  motion,  the  company  and  its  members  who  had  so  held  them- 
selves out  to  be  a  corporation,  were  estopped  to  deny  that  fact,  for  any 
defect  whatsoever,  if  the  same  had  in  fact  existed  in  their  charter. 

The  judgment  of  the  court  of  common  pleas  must,  therefore,  be 
reversed,  and  the  cause  remanded.  Judgment  accordingly. 

SCOTT,  C.  J.,  and  PECK,  GHOLSON  and  BRINKEKHOFF,  JJ.,  concurred. 

10 


146  BOYCE   V.   TRUSTEES   OF  TOWSONTOWN   STATION. 


BOYCE  v.  TRUSTEES  OF  TOWSONTOWN   STATION  OF 
THE  M.  E.   CHURCH. 

1877.     46  Maryland,  359.1 

ASSUMPSIT  against  an  alleged  religious  corporation.  Defendants  ap- 
peared by  counsel,  and  pleaded,  1st,  that  the  defendants  are  not  and 
never  were  a  bod}"  corporate,  as  alleged.  Plaintiff  offered  in  evidence 
an  agreement  or  certificate  of  incorporation  under  a  general  statute. 
The  statute  required  this  document  to  be  acknowledged  before  two 
Justices  of  the  Peace,  or  a  Judge  of  the  Circuit  Court  or  of  the  Supreme 
Bench  of  Baltimore.  It  was  acknowledged  before  a  single  Justice  of 
the  Peace.  Plaintiff,  to  show  user  of  the  corporate  name  and  franchise, 
offered  in  evidence  a  deed  of  land  to  said  Trustees ;  and  a  mortgage 
from  said  Trustees  to  Crook  and  Hiss,  Trustees. 

All  the  above  evidence  was  rejected,  and  plaintiff  excepted.  Verdict 
and  judgment  for  defendants.  Plaintiff  appealed. 

Wm.  A.  Fisher  and  Orville  Horwitz,  for  appellant. 

Arthur  W.  Machen,  for  appellee. 

STEWAKT,  J.  .  .  .  But  the  appellant  has  undertaken  to  offer  evidence 
of  certain  acts  and  proceedings  of  the  appellee,  referred  to  in  the 
exceptions,  to  show  that  it  held  itself  out  as  a  corporation,  and  treated 
with  the  appellant  as  such,  and  is  estopped  from  denying  its  liability  as 
a  corporation. 

We  think  it  would  be  extending  the  doctrine  of  estoppel  to  an  extent, 
not  justified  by  the  principles  of  public  polic}7,  to  allow  it  to  operate 
through  the  conduct  of  the  parties  concerned,  to  create  substantially  a 
de  facto  corporation,  with  just  such  powers  as  the  parties  ma}"  by  their 
acts  give  to  it. 

This  would  be  substituting  the  dealings  of  the  parties,  for  compliance 
with  the  requirements  of  the  law,  and  giving  to  them  the  same  effect 
through  the  aid  of  the  Courts.  Thus,  virtually,  through  the  Courts, 
recognizing  the  existence  of  the  corporation,  in  manifest  disregard  of 
the  written  law. 

It  has  been  determined  by  this  Court,  that  a  corporation  cannot  bind 
itself  in  excess  of  its  powers.  Penna.  Steam  Navigation  Co.  vs. 
Dandridye,  8  G.  &  J.,  819. 

Whilst  denying  its  capacity  upon  any  principle  of  estoppel,  to  make 
contracts  ultra  vires,  to  bind  itself;  it  would  not  be  consistent  with 
that  theory  to  recognize  its  existence  ad  libitum,  according  to  the  con- 
duct of  the  parties  concerned. 

Such  a  principle  would  seem  to  affix  no  other  limit  to  the  existence 
of  the  corporation  de  facto,  or  the  extent  of  its  power  than  the  deal- 
ings of  the  parties,  through  the  recognition  of  the  Courts,  might,  upon 
the  doctrine  of  estoppel,  prescribe. 

1  Statement  abridged.    Arguments,  and  part  of  opinion,  omitted.  —  ED. 


BOYCE   V,   TRUSTEES    OF   TOWSONTOWN   STATION. 


147 


It  would  be  more  reasonable  to  hold  corporations  to  their  contracts, 
though  ultra  vires,  of  which  they  have  received  the  benefit,  or  to  pre- 
vent parties  who  have  contracted  with  them,  and  received  the  bene- 
fit therefrom,  from  defeating  their  liabilit}',  on  the  ground  of  want  of 
power  in  the  corporation,  as  is  held  in  quarters  of  high  author!  t}-, 
(see  note  and  references  in  2nd  Kent,  851, )  than  to  hold  that  corpora- 
tions should  be  deemed  to  have  existence,  because  they  had  so  held 
themselves  out. 

The  statute  law  of  the  State,  expressly  requiring  certain  prescribed 
acts  to  be  done  to  constitute  a  corporation,  to  permit  parties  indirectly, 
or  upon  the  principle  of  estoppel,  virtually  to  create  a  corporation  for 
an}'  purpose,  or  to  have  acts  so  construed,  would  be  in  manifest  opposi- 
tion to  the  statute  law,  and  clearly  against  its  policy,  and  justified 
upon  no  sound  principle  in  the  administration  of  justice. 

Judgment  affirmed. 


~~Y 


148  DOWNING  V.   MOUNT  WASHINGTON  KOAD  CO. 


CHAPTER  IV. 
INTERPRETATION  OF  CHARTERS. 


DOWNING  v.  MOUNT  WASHINGTON  ROAD  CO. 

I860.     40  New  Hampshire,  230. 

ASSUMPSIT,  brought  by  Lewis  Downing  &  Sons,  to  recover  the  price 
of  eight  omnibuses,  and  a  model  for  the  same,  one  light  wagon,  and 
one  baggage  wagon,  made  for  the  defendants,  under  a  contract  entered 
into  by  D.  O.  Macomber,  president  of  the  defendant  corporation,  in 
their  behalf. 

The  light  wagon  was  made  and  sent  to  one  Cavis,  the  agent  for_ 


building  tlie^p^dj^n^hfva^j^^J^jHmjn  makhig^  it^  The  omnibuses 
and  baggage  wagon  were  intended  to  be  used  in  conv  eying  passengers 
up  and  down  the  mountain,  after  the  road  was  completed.  The  omni- 
buses were  constructed  in  a  peculiar  way,  and  are  not  fit  for  use  on 
ordinary  roads. 

B}-  their  act  of  incorporation,  passed  July  1,  1853,  the  corporation 
was  empowered  to  lay  out,  make  and  keep  in  repair,  a  roadJrom  such 
point  in  the  vicinity  of  Mt.  Washington  as  the}1  ma}-  deem  most  favor- 
able, to  the  top  of  said  mountain,  &c.,  and  thence  to  some  point  on 
the  northwesterly  side  of  said  mountain,  &c  ,  to  take  tolls  of  passengers. 
and  for  carriages,  to  build  and  own  toll-houses,  and  to  take^  land  for 
their  road. 

The  corporation  was  duly  organized,  and  at  a  meeting  of  the  direc- 
tors on  the  31st  of  August,  1853,  before  said  contract  was  made,  it 
was  "  voted  that  the  president  be  the  legal  agent  and  commissioner  of 
the  company  ;  "  and  his  compensation  as  such  was  fixed. 

"The  president"  was  "directed  to  proceed  with  the  letting  of  the 
work  for  the  construction  of  the  road,"  "  the  obtaining  the  right  of 
wa}1,"  and  "  what  other  action  he  shall  deem  proper,  for  the  interests 
of  the  compan}',"  &c. 

A  committee  was  appointed  "  to  settle  in  relation  to  the  right  of 
way,  &c.,  and  in  relation  to  land  on  which  to  build  stables  and  other 
buildings,  for  the  use  of  the  road,  and  also  for  building  all  such  stables 
and  houses  as  may  be  necessary  for  the  operations  of  the  company." 


DOWNING  V.   MOUNT   WASHINGTON   ROAD   CO.  149 

It  appeared  that  b}'  an  additional  act,  passed  July  12,  1856,  the 
corporation  were  authorized  "  to  erect  and  maintiTlli  I0000  and  dispose 
of  an}'  building  or  buildings,  which  may  be  found  convenient  for  the 
accommodation  of  their  business,  and  of  the  horses  and  carriages  and_ 
travelers  passing  over  said  road." 

The  defendants  denied  the  authority  of  Macomber  to  make  such  a 
contract  in  behalf  of  the  corporation,  and  the  power  of  the  corporation 
under  its  charter  either  to  authorize  or  enter  into  such  a  contract. 

Kittredge  <£  Itellows,  for  the  plaintiffs. 

George  &  Foster,  for  the  defendants. 

BELL,  C.  J.1  Corporations  are  creatures  of  the  legislature,  having, 
no  other  powers  than. siiclijis_are  given  to  them  by  their  charters,  or 
such  as  are  incidental,  or  necessary  to  carry  into  effect  the  purposes 
for  which  they  were  establistiecT TrusteeiTv.  Peaslee,  15  N.  H.  330 ; 
Perrine  v.  Chesapeake  Canal  Co.,  9  How.  172.  In  giving  a  construc- 
tion to  the  powers  of  a  corporation,  the  language  of  the  charter  should 
in  general  neither  be  construed  strictly  nor  liberally,  but  according  to 
the  fair  and  natural  import  of  it,  with  reference  to  the  purposes  and 
objects  of  the  corporation.  En  field  Bridge  v.  Hartford  R.  R.,  17 
Conn.  454  ;  Strauss  v.  Eagle  Co.,  5  Ohio  (N.  S.)  39. 

If  the  powers  conferred  are  against  common  right,  and  trench  in  any 
wa}r  upon  the  privilegea  ,of  MheiLcitizens,  they  are,  in  cases  of  doubt, 
to  be  construed  strictly,  but  not  SO— as,  tO—impair  or  defeat  the  objects 
of  the  incorporation. 

In  theTpresent  case  the  power  to  take  the  lands  of  others,  and  to 
take  tolls  of  travelers,  must  be  strictly  construed,  if  doubts  should 
arise  on  those  points ;  but  it  is  not  seen  that  the  other  grants  to  the 
defendant  corporation  should  not  receive  a  fair  and  natural  construction. 

The  charter  of  the  Mount  Washington  Road  empowers  them  to  lay 
out,  make  and  keep  in  repair,  a  road  from  Peabody  River  Valley  to  the 
top  of  Mount  Washington,  and  thence  to  some  point  on  the  north- 
west side  of  the  mountain.  It  grants  tolls  on  passengers  and  carriages, 
and  authorizes  them  to  take  lands  of  others  for  their  road,  and  to  build 
and  own  toll-houses,  and  erect  gates,  and  appoint  toll-gatherers  to  col- 
lect their  tolls.  The  remaining  provisions  contain  the  ordinary  powers 
of  corporations,  relating  to  directors,  stock,  dividends,  meetings,  &c. 
Laws  of  1853,  chapter  1486. 

This  charter  confers  the  usual  powers  heretofore  granted  to  turnpike 
corporations,  and  no  others.  The  most  natural  and  satisfactory  mode 
of  ascertaining  what  are  the  powers  incidentally  granted  to  such  com- 
panies, is  to  inquire  what  powers  have  been  usually  exercised  under 
them,  without  question  by  the  public  or  by  the  corporators.  It  may 
be  safely  assumed  that  the  powers  which  have  not  heretofore  been 
found  necessary,  and  have  not  been  claimed  or  exercised  under  such 
charters,  are  not  to  be  considered  generally  as  incidentally  granted. 

1  BELLOWS,  J.,  did  uot  sit. 


150  DOWNING   V.   MOUNT  WASHINGTON   ROAD   CO. 

Such  charters  have  in  former  years  been  very  common  in  this  and 
other  States,  and  the}'  have  not,  so  far  as  we  are  aware,  been  under- 
stood as  authorizing  the  corporations  to  erect  hotels,  or  to  establish 
stage  or  transportation  lines,  to  purchase  horses  or  carriages,  or  to 
employ  drivers  in  transporting  passengers  or  freight  over  their  roads ; 
and  no  such  powers  have  anywhere  been  claimed  or  exercised  under 
them.  We  are,  therefore,  of  opinion  that  the  power  to  establish  stage 
and  transportation  lines  to  and  from  the  mountain,  to  purchase  car- 
riages and  horses  for  the  purpose  of  carrying  on  such  a  business,  was 
not  incidentally  granted  to  the  defendant  corporation  by  their  charter. 
State  v.  Commissioners ,  3  Zab.  510. 

But  it  is  contended  that  the  power  to  make  this  contract  is  con- 
ferred by  the  act  in  amendment  of  the  charter,  passed  July  12,  1856. 
B}'  this  act  the  corporation  may  "erect  and  maintain,  lease  and  dis- 
pose of  an}1  building  or  buildings  which  may  be  found  convenient  for 
the  accommodation  of  their  business,  and  of  the  horses  and  carriages 
and  travelers  passing  over  their  said  road."  By  their  business,  which 
the  buildings  to  be  erected  were  designed  to  accommodate,  it  is  said 
the  legislature  must  have  intended  some  permanent  and  continuing 
business  beyond  that  of  merely  building  and  maintaining  a  road ;  and 
that  it  could  be  no  other  than  that  of  erecting  a  hotel  on  the  mountain, 
and  establishing  lines  of  carriages,  for  the  purpose  of  carrying  visitors 
up  and  down  the  mountain. 

But  the  foundation  of  this  implication  is  very  slight.  The  express 
grant  is  of  an  authority  to  erect,  &c.,  buildings,  not  of  all  kinds,  but 
such  as  may  be  found  convenient  for  the  accommodation  of  their  busi- 
ness, and  of  travelers,  &c.  The  business  here  referred  to  must  be 
understood  to  be  such  as  they  are  by  their  charter  authorized  to  engage 
in.  If  nothing  had  been  said  of  horses  and  travelers,  there  could 
hardly  be  any  foundation  for  the  idea  that  a  hotel  could  have  been 
contemplated  by  the  legislature.  Buildings  suitable  for  the  accommo- 
dation of  their  toll-gatherers  and  workmen  employed  on  their  road, 
would  probably  be  thought  every  thing  the  legislature  intended  to 
authorize  by  this  additional  act.  Connected  as  this  authority  now  is 
with  t.i-ftvglgra,  hnvspa  ajjd  carriages,  there  is  scarce_-a— pretence  for 
argument,  that  this  additional  act  goes  any  further  than  the  original 
act,  to  authorize  a  stage  and  transportation  company.  It  is  not 
unlikely  that  some  of  the  projectors  ^>f~this  enterprise  intended  to 
secure  much  more  extensive  rights  than  those  of  a  turnpike  and  hotel 
company,  but  it  seems  certain  they  have  not  exhibited  this  feature 
of  their  case  to  the  legislature  so  distinctly  as  to  secure  their  sanc- 
tion, and  the  charter  and  its  amendment  as  yet  justifies  them  in  no  such 
claim. 

The  power  of  buying  and  selling  real  and  personal  property  for  the 
legitimate  purposes  of  the  corporation,  and  the  power  of  contracting 
generally  for  the  same  purposes,  within  the  limits  prescribed  by  the 
charter,  being  granted,  we  understand  the  principle  to  be,  that  their 


DOWNING   V.   MOUNT   WASHINGTON   ROAD   CO.  151 

purchases,  sales,  and  contracts  generally,  will  be  presumed  to  be  made 
within  the  legitimate  scope  and  purpose  of  the  corporation,  until  the 
contrary  appears,  and  that  the  burden  of  showing  that  any  contract  of 
a  corporation  is  beyond  its  legitimate  powers,  rests  on  the  party  who 
objects  to  it.  Indiana  v.  Woram,  6  Hill  37;  Ex  parte  Peru  Iron 
Company,  7  Cow.  540;  Farmer's  Loan  v.  Clowes,  3  Comst.  470; 
Same  v.  Curtis,  3  Seld.  466 ;  Biers  v.  Phenix  Company,  14  Barb. 
358. 

If  a  corporation  attempt  to  enforce  a  contract  made  with  them  in  a 
case  beyond  the  legitimate  limits  of  their  corporate  power,  that  fact 
being  shown,  will  ordinarily  constitute  a  perfect  defence.  Green  v. 
Seymour,  3  Sandf.  Ch.  285;  Bangor  Boom  v.  Whiting,  29  Me.  123; 
Life  &c.  Company  v.  Manufacturers  &c.  Company,  7  Wend.  31 ; 
New-  York  &c.  Insurance  Company  v.  Ely,  5  Conn.  560. 

And  if  a  suit  is  brought  upon  a  contract  alleged  to  be  made  by  the 
corporation,  but  which  is  shown  to  be  beyond  its  corporate  power  to 
enter  into,  the  contract  will  be  regarded  as  void,  and  the  corporation 
ma}-  avail  themselves  of  that  defence.  Beach  v.  Fulton  Bank,  3 
Wend.  573  ;  Albert  v.  Savings  Bank,  1  Md.  Ch.  Dec.  407 ;  Abbot  v. 
Baltimore  &c.  Company,  1  Md.  Ch.  Dec.  542;  Strauss  v.  Eagle 
Insurance  Company,  5  Ohio  (N.  S.)  59  ;  Baron  v.  Mississippi  Insur- 
ance Company,  31  Miss.  116  ;  Bank  of  Genesee  v.  Patchin  Bank,  3 
Kern.  315  ;  Gage  v.  Newmarket,  18  Q.  B.  457. 

The  contract  set  up  in  this  case  was  made  not  by  the  corporation 
itself,  by  a  vote,  nor  by  an  agent  expressly  authorized  to  sign  a  contract 
already  drawn,  but  it  was  made  by  the  president  of  the  corporation, 
acting  under  an  appointment  as  their  general  agent ;  and  it  is  argued 
that  he  was  fully  authorized  by  votes  of  the  corporation  to  bind  them 
by  such  a  contract  as  the  present ;  but  it  is  not  necessary  to  consider 
this  question,  as  we  think  it  settled  that  the  powers  of  t{ie  agents  of 
corporations_to_cnter  into  contractsjnjbheir  behalf  are  limited,  by  the 
nature  of  things,  to  such  contracts  as  the  corporations  are  by  their 
charters  authorized  to  make.  This  principle  is  distinctly  recognized  in 
McCullough  v.  Moss,  5  Den.  567;  overruling  the  case  of  Moss  v. 
Rossie  Lead  Co.,  5  Hill  137,  and  in  Central  Bank  v.  Empire  Co.,  26 
Barb.  23  ;  Bank  of  Genesee  v.  Patchin  Bank,  3  Kern.  315. 

The  same  want  of  power  to  give  authority  to  an  agent  to  contract, 
and  thereby  bind  the  corporation  in  matters  beyond  the  scope  of  their 
corporate  objects,  must  be  equally  conclusive  against  any  attempt  to 
ratify  such  contract.  What  the}*  cannot  do  directly  the}*  cannot  do 
indirectly.  They_cannotbind  themselves  byjhe  ratification  of  a  con- 
tract which  they  had  noauthority~to  make.  5  Den.  567,  above  cited. 
The  power  of  the  agent  must  be  restricted  to  the  business  which  the 
company  was  authorized  to  do.  Within  the  scope  of  the  business 
which  they  had  power  to  transact,  he,  as  its  agent,  may  be  authorized 
to  act  for  it,  but  beyond  that  he  could  not  be  authorized,  for  its  powers 
extend  no  further. 


152  STOURBRIDGE   CANAL   V.   WHEELEY. 

This  view  seems  to  us  entirely  conclusive  against  the  claim  made  for 
the  omnibuses  and  model,  and  probably  for  the  baggage  wagon. 

^As  tojth£ji%h4  wagon,  that- may  stand  on  a  different  ground.  Such 
a  wagon  might  be  useful  and  necessary  for  the  use  of  the  agent  of  the 
company,  in  conducting  the  undoubted  business  of  the  corporation  — 
the  building  and  maintaining  the  road. 

We  are  unable  to  assent  to  the  position  taken  in  the  argument,  that 
a  ratification  of  part  is  a  ratification  of  the  whole  contract.  While  the 
corporation  may  be  restricted  from  ratifying  a  contract  beyond  the 
scope  of  the  objects  of  the  corporation,  there  could  be  no  such  objec- 
tion as  to  any  matter  clearly  within  their  power.  The  other  contract- 
ing party  might  have  a  right  to  reject  such  ratification,  claiming  that 
the  contract  is  entire,  and  if  not  ratified  as  such,  it  should  not  be  made 
good  for  a  part  only.  But  if  they  claim  the  benefit  of  the  partial  rati- 
fication, the  corporation  can  hardly  object. 


PROPRIETORS  OF  THE  STOURBRIDGE  CANAL  v.  WHEELEY. 

1831.     2  Barnewall  $•  Adolphus,  792. 

THIS  case  was  argued  in  the  last  term  a  by  Sir  James  Scarlett  for  the 
plaintiff,  and  Campbell  for  the  defendants.  The  facts  of  the  case, 
the  several  clauses  of  the  act  of  parliament  upon  which  the  question 
arose,  and  the  arguments  urged,  are  so  fully  stated  and  commented  on 
in  the  judgment  delivered  b}'  the  Court,  that  it  is  deemed  unnecessary 
to  notice  them  here.  Cur.  adv.  vult. 

Lord  TENTERDEN,  C.  J.,  in  the  course  of  this  term,  delivered  the 
judgment  of  the  Court. 

This  case  was  argued  before  us  in  the  last  term.  It  was  an  action  of 
assumpsit  brought  by  the  plaintiffs  to  recover  the  sum  of  4921.  9s.  as  a 
compensation  for  the  use  of  a  way  or  passage  for  boats  loaded  with 
coals  and  other  merchandise,  along  a  part  of  the  plaintiffs'  canal,  made 
under  the  powers  of  the  16  G.  3,  c.  28,  an  act  of  parliament  for  mak- 
ing and  maintaining  the  Stourb ridge  Canal  with  two  collateral  cuts. 
This  canal  was  formed  upon  two  levels ;  the  upper  or  summit  level, 
which  communicates  with  the  Dudley  Canal,  then  intended  to  be  made 
and  since  completed ;  upon  the  whole  of  which  level  there  is  no  lock  ; 
and  the  lower  or  Stourbridge  level,  extending  from  Stourbridge  to 
Stourton  ;  and  the  two  levels  are  connected  b}-  a  chain  of  sixteen  locks. 
The  defendants  have  carried  large  quantities  of  coals  and  other  goods, 
part  from  the  Dudley  Canal,  part  not,  along  the  upper  level,  without 

1  Before  Lord  TENTEBDEN,  C.  J.,  LITTLEDALE,  PARKS,  and  TAUNTON,  Js. 


STOURBKIDGE   CANAL   V.    WHEELEY.  153 

passing  through  any  lock.     Until  recently  they  have  paid  to  the  plain- 
tiffs a  compensation  in  the  nature  of  tonnage  for  the  coals  and  goods 
so  carried,  as  other  persons  have  also  done  ;  but  the  defendants  having 
latterly  refused  to  do  so,  this  action  has  been  brought ;  and  the  ques- 
tion is,  whether  tbe^plain  tiffs  are  entitled  to  demand  anything  for  the 
use  of  thejmrt  pfjjie  canal  on  which  the  defendants  have  so  navigated ;' 
if  the}-  are,  the  sum  claimed  is  admitted  to  be  reasonable,  and  the  pIain.-~ 
tiffs  are  entitled  tn  rpnovqr  jt :  if  they  are  notr  the  previous  payments^ 
by  the  defendant^  cannot  render  them  liable,  and  the  plaintiffs  cannot 
re  cover  anything. 

The  canaThaving  been  made  under  the  provisions  of  an  act  of  par- 
liament, the  rights  of  the  plaintiffs  are  derived  entirely  from  the  act. 
This,  like  many  other  cases,  is  a  bargain  between  a  company  of  adven- 
turers and  the  public,  the  terms  of  which  are  expressed  in  the  statute ; 
and  the  rule  of  construction  in  all  such  cases  is  now  full}'  established 
to  be  this,  —  that  any  ambiguity  in  the  terms  of  the  contract  must_ 
operate  against  the  adventarprgj  fl"d  in  favour  of  the  public ;  and  the 
plaintiffs  can  claim  nothing  which  is  not  clearly  given  to  them  by  the 
act.  This  rule  is  laid  down  in  distinct  terms  by  the  Court  in  the  case 
of  The  Hull  Dock  Company  v.  La  Marche,  8  B.  &  C.  51,  where  some 
previous  authorities  are  cited ;  and  it  was  also  acted  upon  in  the  case 
of  The  Leeds  and  Liverpool  Canal  Company  v.  Hustler,  1  B.  &  C.  424. 

Adopting  this  rule,  we  are  to  decide  whether  a  right  to  demand, 
some  compensation  for  the  use  of -this,  part  of  the  canal,  is  clearly  and 
unambiguously  given  to  the  -plaintiffs-  by  thia^  act  of  parliament ;  and 
we  think  it  is  noL_ 

The  act  of  parliament  recites  that  the  proposed  canal  will  be  of 
public  utility  (p.  732)  ;  the  company  are  empowered  to  purchase  land 
for  the  use  of  the  navigation  (p.  748)  ;  the  lands  acquired  by  voluntary 
or  compulsory  sale  are  vested  in  the  proprietors  for  the  use  of  the 
navigation,  and  for  no  other  use  or  purpose  whatsoever  (p.  759)  ;  and 
allj)crsons  whatsoever-age— to_ have  free  liberty  "  to  navigate  upon  the 
canal  and  collateral  cuts  with  jiny  boats  qr_other  vessels"  of  certain 
dimensions,  "  and  to_use_the  wharfs  and  quays  tor  loading  and  unload- 
ing any  goods,  wares,  merchandise,  and  commodities ;  and  also  to  use 
the i  towing paths  with  horses  fojijiaj^jiog^gjid^  drawing  such  boats  and 
vessels  upon  payment  of  such  rates  and  dues  as  shall  be  demanded  by 
the  said  company  of  proprietors  not  exceeding  the  rates  before  men- 
tioned in  the  statute"  (p.  788).  This  refers  to  a  previous  clause, 
p.  777,  which  provides  that,  in  consideration  of  the  great  charge  and 
expense  of  the  proprietors  in  making,  maintaining,  and  supplying  with 
water  the  canal  and  collateral  cuts,  &c.,  it  shall  be  lawful  for  the  com- 
pany  from  time  to  time  to  ask,  demand,  take,  and  recover  for  their 
own  use  and  benefit  for  the  tonnage  and  wharfage  of  iron,  &c.,  and 
other  commodities  navigated,  carried,  and  conveyed  thereon,  such  rates 
and  duties  as  the}'  shall  think  fit,  not  exceeding  the  sum  of  sixpence 
for  every  ton  of  iron,  &c.,  navigated  on  any  part  of  the  canal,  and 


154  STOUEBKIDGE   CANAL   V.  WHEELEY. 

which  shall  pass  through  any  one  or  more  of  the  locks  which  shall  be 
erected  on  the  said  canal.  A  similar  provision  is  made  for  the  tonnage 
and  wharfage  of  goods  in  vessels  navigated  on  the  collateral  cuts  ;  and 
a  power  of  bringing  an  action  for  arrears  or  distraining  is  given  to  the 
company. 

Now,  it  is  quite  certain  that  the  company  have  no  right  expressly 
given  to  receive  any  compensation  except  the  tonnage  paid  for  goods 
carried  through  some  of  the  locks  on  the  canal  or  the  collateral  cuts ; 
and  it  is  therefore  incumbent  upon  them  to  show  that  the}'  have  a  right 
clearly  given  by  inference  from  some  of  the  other  clauses. 

One  of  the  clauses  relied  upon  by  the  plaintiffs  is  that  which  gives 
the  public  the  use  of  the  canal,  p.  788,  and  it  is  contended  that  no  per- 
sons have  a  right  to  use  any  part  of  the  canal  under  that  clause,  except 
those  who  actually  do  pay  some  of  the  I'ates  or  dues,  and  consequently 
pass  some  of  the  locks  ;  and  that  if  individuals  have  no  right  to  navi- 
gate a  particular  part,  the  company  may  make  their  own  bargain  as  to 
the  terms  upon  which  they  ma}-  be  permitted  to  do  so. 

But  the  clause  in  question  is  capable  of  two  constructions ;  one,  that^ 
those  persons  who  pass  the  locks,  and_therefore  pay  the  rates,  and 
those  only,  are  entitled  to  navigate  any  part  of  the  canal  or  cuts  ;  the" 
other,  that  all  persona  are  entitled  to  nap  it,  pnyi^g  ypt.pg  wh^n  rates 
are  due.    The  former  of  these  constructions  is  against  the  public  and  in 
favour  of  the  company,  the  latter  is  in  favour  of  the  public  and  against 
the  company,  and  is  therefore,  according  to  the_rule  a]yMM> ,  luid  down, 
the  one  which  ought  toj)e_adop_ted. 

And  indeed  the  more  obvious  meaning  of  this  clause  is,  to  declare 
that  the  canal  is  dedicated  to  the  public,  but,  at  the  same  time,  to  pre- 
serve the  right  of  the  company  to  the  rates  already  given  :  and  ic  is 
reasonable  to  suppose  that,  by  the  section  p.  777,  which  gives  the  rates 
as  a  compensation  for  the  expenses  of  the  proprietors,  the  legislature 
meant  to  include  all  the  benefit  they  were  to  derive  from  the  canal,  and 
not  to  leave  the  company  to  make  what  agreement  they  pleased  with 
the  public  in  cases  not  provided  for,  and  to  gain  an  unlimited  profit 
from  a  particular  part  of  it.  They  probably  did  not  contemplate  the 
case  of  persons  using  the  canal  who  did  not  pass  any  lock ;  but  whether 
the  omission  was  intentional,  or  arose  from  inadvertence,  it  is  still  an 
omission  in  that  clause  which  provides  for  the  emolument  of  the 
company. 

Another  section  upon  which  some  reliance  was  placed,  was  that  in 
page  789,  which  gives  to  the  owners  of  adjoining  lands  the  power  to 
use  an}'  pleasure  boats  on  the  canal,  &c.  (so  as  the  same  do  not  pass 
through  any  lock),  without  paying  an}*  rates  or  dues  for  the  same,  and  so 
as  such  boat  be  not  used  for  carrying  any  goods  ;  and  it  is  argued  that 
the  inference  arising  from  the  latter  part  of  this  clause  is,  that  pleasure 
boats  carrying  goods  would  be  liable  to  pay  rates,  though  they  should 
pass  no  locks ;  and  if  pleasure  boats,  then  all  other  boats  should  be 
equally  liable.  And  there  is  no  doubt  but  that  this  provision  does 


WHITAKER  V.    DELAWARE   AND   HUDSON   CANAL  CO.  155 

afford  some  colour  for  this  argument.  The  object  of  the  clause  appears 
to  have  been,  partly  to  secure  the  right  of  the  proprietors  to  use  the 
canal  with  pleasure  boats ;  (and  in  that  respect  it  was  introduced  pro 
majore  cautela;)  and  partly  to  prevent  the  company  being  injured  by 
their  passing  through  locks ;  and  the  framer  of  the  clause  seems  to  have 
added  the  last  provision  in  the  section  merely  to  put  pleasure  boats 
with  goods  on  board,  on  the  footing  of  loaded  vessels,  without  consid- 
ering whether  loaded  vessels  were  liable  to  duties  or  not.  Albany  rate 
this  clause  is  not  sufficient^jtL  our  judgment^tO-fiJiable  us  to  say  that  it 
is  clear  the  legislature  intended  to  give  tfoe  plaintiffs  the  right  to  the_ 
compensation  claimed  for  the  use  of  a  J3art_of.  the  canal  where  there  is 
no  lock. 

Upon  the  principle  of  construction,  therefore,  above  laid  down,  viz., 
that  the  company  are  entitled  to  impose  no  burthen  on  the  public  for 
their  own  benefit  except  that  which  is  clearly  given  by  the  act,  we  are 
of  opinion  that,  as  their  right  to  claim  this  compensation  is  not  clearly 
given  by  the  act,  the  plaintiffs  are  not  entitled  to  recover. 

Judgment  for  defendants. 


WHITAKER  v.   DELAWARE   &  HUDSON   CANAL  CO. 

1878.     87  Pa.  State,  34.1 

CASE  to  recover  for  damages  to  plaintiff's  lumber  rafts  while  passing 
through  the  schute  of  defendants'  dam,  alleged  to  have  resulted  from 
the  improper  construction  and  maintenance  of  such  dam.  At  the 
trial,  in  the  Court  of  Common  Pleas,  after  evidence  had  been  intro- 
duced by  both  sides,  WALLER,  P.  J.,  directed  a  verdict  for  defendants. 
Plaintiff  took  a  writ  of  error. 

G.  G.  Waller,  for  plaintiff  in  error. 

II.  M.  Seely,  for  defendant  in  error. 

TRUNKEY,  J.  The  defendants  were  incorporated  under  the  laws  of 
New  York,  and  by  divers  statutes  of  this  state,  are  vested  with  certain 
public  franchises.  For  the  purposes  of  the  grant  the  dam  across  the 
Delaware  river  was  built  about  fifty  }'ears  ago,  and  the  right  to  main- 
tain it  is  conceded.  In  the  Act  of  1825,  Pamph.  L.  142,  is  a  pro- 
vision "That  the  said  compan}*  shall  not  erect  any  works,  or  make  any 
improvement,  connected  with  the  Delaware  river,  unless  the  same  shall 
be  so  constructed  as  to  leave  the  channel  of  said  river  as  safe  and  as 
convenient  for  the  descent  of  rafts  as  it  now  is."  The  plaintiff  conv 
plains  that  the  river  _ia  not  -as  safe  and  convenienFfor  navigation  as 
before  the  erection  of  the  dam.  Unquestionably  this  is  so.  A  dam  in 

1  Statement  abridged.     Arguments,  and  part  of  opinion,  omitted.  —  ED. 


156  WHITAKER  V.   DELAWARE   AND   HUDSON   CANAL   CO. 

a  stream  is  an  impediment  and  in  some  degree  renders  its  navigation 
less  safe  and  convenient.  A  literal  construction  of  this  provision 
makes  it  impossible  to  build  and  maintain  the  dam,  and  the  conceded 
right  vanishes.  The  statutes  of  this  state,  recognizing  those  of  New 
York,  and  in  connection  therewith,  conferring  the  power  to  construct 
a  great  public  highway,  are  nugatory  under  a  strict  construction  of  the 
section  providing  for  safe  and  convenient  navigation  of  the  river. 
This  was  hot  the  legislative  intent.  It_could  not  have  been  intended 
to  grant  a  franchise-lo  build  a  public  highway,  in_  connection  with  one 
in  a  sister  state,  and  so  clog  it  that  the  work  could  never  be  executed. 

Various  statutes,  from  time  to  time,  have  been  enacted  authorizing 
public  improvements,  some  of  which  would  obstruct  or  impede  the 
navigation  of  rivers,  and  others  the  use  of  streets  and  roads,  which 
contained  provisions  forbidding  such  obstructions  and  impediments. 
The  courts  have  uniformly  held  that  these  provisions  should  be  liberally 
'  construed,  so  as  not  to  destroy  the  grant.  For  instance,  the  act  of  in- 
corporation of  the  Monongahela  Bridge  Company  contained  a  declara- 
tion that  nothing  therein  contained  should  authorize  the  erection  of  a 
bridge  over  the  Monongahela  river  "in  such  manner  as  to  injure,  stop, 
or  interrupt  the  navigation  of  the  said  river,  by  boats,  rafts  or  other 
vessels."  It  was  held  that  the  proviso  was  not  intended  to  prevent  the 
erection  of  piers  in  the  bed  of  the  river,  yet  piers  in  the  bed  of  a  navi- 
gable stream  inevitably  endanger  navigation  and  render  it  more  difficult. 
They  do  not  necessarily  "  injure,  stop  or  interrupt  the  navigation  "  in 
the  sense  in  which  these  words  were  used  by  the  legislature.  A  strict 
literal  meaning  was  not  intended,  and  in  the  very  nature  of  things,  it 
never  could  have  been.  When  the  purpose  of  the  franchise  is  the 
performance  of  a  public  act,  the  grant  is  to  be  so  interpreted  as  to 
enable  the  act  to  be  done.  The  extension  of  one  highway  over  an- 
other is  a  public  act,  and  not  less  so  because  of  the  power  to  exact 
tolls:  Monongahela  Bridge  Co.  v.  Kirk,  10  Wright,  112.  The  charter 
of  the  Erie  and  North  East  Railroad  Company  had  a  provision  that 
"  The  said  railroad  shall  be  so  constructed  as  not  to  impede  or  obstruct 
the  free  use  of  any  public  road,  street,  lane  or  bridge  now  laid  out, 
opened  or  built."  "  These  words  taken  literally  and  in  their  strongest 
sense  would  prevent  the  railroad  from  being  made  on  the  streets  at  all. 
But  we  follow  authority  in  saying  they  are  not  to  be  so  interpreted.  The 
defendants  have  a  right  to  use  a  street  if  they  take  care  to  obstruct  it 
as  little  as  the  nature  and  character  of  their  improvement  will  permit, 
if  they  create  no  material  or  unnecessary  impediment — no  obstruction 
which  could  be  avoided  b}'  any  reasonable  expenditure  of  money  or 
labor.  They  cannot  occupy  the  whole  of  a  street  and  drive  the  public 
away  from  it  altogether.  But  any  street  which  is  wide  enough  for  the 
railroad  and  public  both  may  be  used  on  the  terms  mentioned."  Per 
BLACK,  C.  J.,  Commonwealth  v.  E.  &  N.  E.  Railroad  Co.,  3  Casey  365. 

It  is  no  departure  from  the  current  of  decisions,  but  in  its  direct 
line,  to  hold  that  the  defendants  can  enjoy  their  franchise,  can  lawfully 


CHARLES   RIVER   BRIDGE    V.   WARREN    BRIDGE.  157 

construct  and  maintain  their  dam,  taking  care  to  obstruct  the  channel 
as  little  as  the  nature  and  character  of  the  improvement  will  permit, 
and  leaving  it  as  safe  and  convenient  for  the  navigation  of  rafts  as 
could  be  by  any  reasonable  expenditure  of  money  and  labor.  Their 
franchise  is  for  the  construction  of  one  highway  over  another.  The 
whole  community  are  interested  in  both.  Private  <^>ftr^r?  ftra  strictly 
interpreted.  In  them  .what  is  not  expressed  or  necessarily  implied,  is. 
not  granted,  and  what  is  doubtful  is  resolved  in  favor  of  the  sovereign.  _ 
But  when  the  sovereign  grants  a  public  franchise  over  a  highway  ^_  a 
clause  relajiyjjxjjihe  use  of  said  highway  will  not  be  so  construed  as  to 
defeat  the  grajit. 

The  plaintiff  does  not  claim  merely  for  consequential  damages,  re- 
sulting solely  from  the  construction  of  the  dam.  If  he  did,  the 
defendants'  answer  would  be  found  in  Clark  v.  Birmingham  and 
Pitts.  Bridge  Co.,  5  Wright  147,  and  Monongahela  Bridge  Co.  v. 
Kirk,  supra. 

He  claims  further  for  an  immediate  injury,  consequent  upon  the  de- 
fendants' negligence,  in  that  they  "  built  and  left  the  said  dam  in  and 
across  said  highway,  in  a  dangerous,  insecure  and  impassable  state  and 
condition."  His  averment  implies  much  more  than  such  obstruction 
as  was  necessary  for  the  purposes  of  the  franchise,  and,  if  established, 
and  there  was  no  contributory  negligence,  his  right  to  recover  is  clear. 
If  he  adduced  sufficient  proof  of  such  negligence,  it  should  have  been 
submitted  to  the  jury. 

[After  considering  the  evidence,  the  Court  held,  that  it  was  insuffi- 
cient to  warrant  a  finding  that  the  defendants  were  guilty  of  neg- 
ligence.] Judgment  affirmed.  /^, 


PROPRIETORS  OF  CHARLES   RIVER  BRIDGE  v.  PROPRIE- 
TORS  OF   WARREN   BRIDGE. 

1837.     11  Peters  U.  S.  420.1 

ERROR  to  Supreme  Court  of  Massachusetts.  Bill  in  equity  to  enjoin 
the  building  of  Warren  Bridge,  and  for  general  relief. 

In  1650,  the  Massachusetts  Legislature  granted  to  Harvard  College 
the  power  to  dispose,  by  lease  or  otherwise,  of  the  ferry  from  Charles- 
town  to  Boston.  In  1785,  the  legislature  incorporated  "The  Proprie- 
tors of  Charles  River  Bridge,"  for  the  purpose  of  erecting  a  bridge  in 
the  place  where  the  ferry  was  then  kept.  The  charter  was  limited  to 
forty  years  from  the  opening  ;  the  company  were  to  pay  2001  annually 
to  Harvard  College  ;  and  at  the  end  of  the  fort}*  years  the  bridge  was 

1  Statement  abridged.     Arguments  omitted.  —  ED. 


158  CHAELES   RIVER   BRIDGE   V.   WARREN   BRIDGE. 

to  be  the  property  of  the  commonwealth,  saving  to  the  college  a  reason- 
able annual  compensation  for  the  annual  income  of  the  ferry.  The 
bridge  was  opened  in  1786.  In  1792,  the  legislature  chartered  The 
Proprietors  of  West  Boston  Bridge  to  bridge  the  same  river  at  a  point 
about  a  mile  and  a  half  from  the  first  bridge.  The  7th  section  of  the 
act  of  1792  extends  the  charter  of  Charles  River  Bridge  to  seventy 
years  from  its  opening ;  inasmuch  as  the  erection  of  West  Boston 
Bridge  "  ma}T  diminish  the  emoluments  of  Charles  River  Bridge."  In 
1828,  the  legislature  incorporated  Proprietors  of  Warren  Bridge  to  er,ect 
another  bridge  across  Charles  River,  distant  only  sixteen  rods  on  the 
Charlestown  side  and  about  fifty  rods  on  the  Boston  side  from  the  bridge 
of  the  plaintiffs.  Warren  Bridge,  by  the  terms  of  its  charter,  was  to  be 
surrendered  to  the  State,  as  soon  as  the  expense  of  building  and  sup- 
porting it  should  be  reimbursed ;  and  this  period  was  in  no  event  to 
exceed  six  years  from  the  time  of  beginning  to  receive  toll.  A  supple- 
mental bill  was  filed,  alleging  that  the  Warren  Bridge  had  been  so  far 
completed  as  to  be  open  for  travel.  In  the  argument  in  the  U.  S. 
Supreme  Court,  it  was  admitted  that  sufficient  toll  had  been  received 
b}-  the  owners  of  the  Warren  Bridge  to  reimburse  their  expenses,  that 
the  bridge  has  now  become  the  propert}'  of  the  state  and  has  been 
made  a  free  bridge ;  and  that  the  value  of  the  franchise  granted  to  the 
owners  of  the  Charles  River  Bridge  has,  by  this  means,  been  entirely 
destroyed. 

In  the  Supreme  Court  of  Massachusetts  the  judges  were  equally 
divided  in  opinion  ;  and  the  bill  was  there  dismissed  by  a  decree  pro 
formd.  7  Pick.  344. 

Dutton  and  Webster,  for  plaintiffs. 

Greenleaf  and  J)avist  contra. 

TANEY,  C.  J. 

The  plaintiffs  in  error  insist  mainly  upon  two  grounds :  1.  That  by 
virtue  of  the  grant  of  1650,  Harvard  College  was  entitled,  in  perpe- 
tuity, to  the  right  of  keeping  a  ferry  between  Charlestown  and  Bos- 
ton ;  that  this  right  was  exclusive ;  and  that  the  legislature  had  not 
the  power  to  establish  another  ferry  on  the  same  line  of  travel,  because 
it  would  infringe  the  rights  of  the  college  ;  and  that  these  rights,  upon 
the  erection  of  the  bridge  in  the  place  of  the  ferry,  under  the  charter  of 
1785,  were  transferred  to,  and  became  vested  in  "the  proprietors  of 
the  Charles  River  Bridge  ;  "  and  that  under  and  by  virtue  of  this  trans- 
fer of  the  ferry  right,  the  rights  of  the  bridge  company  were  as  exclu- 
sive in  that  line  of  travel  as  the  rights  of  the  ferry.  2.  That 
independently  of  the  ferry  right  the  acts  of  the  legislature  of  Massachu- 
setts of  1785,  and  1792,  by  their  true  construction,  necessarily  implied 
that  the  legislature  would  not  authorize  another  bridge,  and  especially 
a  free  one,  by  the  side  of  this,  and  placed  in  the  same  line  of  travel, 
whereby  the  franchise  granted  to  the  "  Proprietors  of  the  Charles  River 
Bridge"  should  be  rendered  of  no  value  ;  and  the  plaintiffs  in  error  con- 


CHARLES   RIVER   BRIDGE   V.   WARREX   BRIDGE.  159 

tend  that  the  grant  of  the  ferry  to  the  college,  and  of  the  charter  to 
the  proprietors  of  the  bridge,  are  both  contracts  on  the  part  of  the 
State  ;  and  that  the  law  authorizing  the  erection  of  the  Warren  Bridge, 
in  1828,  impairs  the  obligation  of  one  or  both  of  these  contracts. 

It  is  very  clear  that  in  the  form  in  which  this  case  comes  before  us, 
being  a  writ  of  error  to  a  state  court,  the  plaintiffs  in  claiming  under 
either  of  these  rights  must  place  themselves  on  the  ground  of  contract, 
and  cannot  support  themselves  upon  the  principle  that  the  law  devests 
vested  rights.  It  is  well  settled  by  the  decisions  of  this  court  that  a 
state  law  may  be  retrospective  in  its  character,  and  may  devest  vested 
rights,  and  yet  not  violate  the  constitution  of  the  United  States,  unless 
it  also  impairs  the  obligation  of  a  contract. 

[The  learned  judge  then  held,  that  the  ferry  rights,  and  all  franchises 
connected  therewith,  were  extinguished,  and  not  transferred  to  the 
Charles  River  Bridge  corporation.] 

This  brings  us  to  the  act  of  the  legislature  of  Massachusetts,  of  1785, 
by  which  the  plaintiffs  were  incorporated  by  the  name  of  "  The  Pro- 
prietors of  the  Charles  River  Bridge,"  and  it  is  here,  and  in  the  law  of 
1792,  prolonging  their  charter,  that  we  must  look  for  the  extent  and 
nature  of  the  franchise  conferred  upon  the  plaintiffs. 

Much  has  been  said  in  the  argument,  of  the  principles  of  construc- 
tion by  which  this  law  is  to  be  expounded,  and  what  undertakings,  on 
the  part  of  the  State,  may  be  implied.  The  court  think  there  can  be 
no  serious  difficulty  on  that  head.  It  is  the  grant  of  certain  franchises 
by  the  public  to  a  private  corporation,  and  in  a  matter  where  the  public 
interest  is  concerned.  The  rule  of  construction  in  such  cases  is  well 
settled,  both  in  England,  and  by  the  decisions  of  our  own  tribunals. 

[The  learned  judge  here  cited  and  commented  upon  Stourbridge 
Canal  v.  Wheeley,  2  B.  &  Ad.  793,  ante.~\ 

Borrowing,  as  we  have  done,  our  system  of  jurisprudence  from  the 
English  law ;  and  having  adopted,  in  every  other  case,  civil  and  crim- 
inal, its  rules  for  the  construction  of  statutes  ;  is  there  anything  in  our 
local  situation,  or  in  the  nature  of  our  political  institutions,  which  should 
lead  us  to  depart  from  the  principle  where  corporations  are  concerned? 
Are  we  to  apply  to  acts  of  incorporation,  a  rule  of  construction  differing 
from  that  of  the  English  law,  and,  by  implication,  make  the  terms  of  a 
charter  in  one  of  the  States,  more  unfavorable  to  the  public,  than  upon 
an  act  of  parliament,  framed  in  the  same  words,  would  be  sanctioned  in 
an  English  court?  Can  an}*  good  reason  be  assigned  for  excepting  this 
particular  class  of  cases  from  the  operation  of  the  general  principle ; 
and  for  introducing  a  new  and  adverse  rule  of  construction  in  favor  of 
corporations,  while  we  adopt  and  adhere  to  the  rules  of  construction 
known  to  the  English  common  law,  in  every  other  case,  without  excep- 
tion? We  think  not;  and  it  would  present  a  singular  spectacle,  if, 
while  the  courts  in  England  are  restraining,  within  the  strictest  limits, 


160  CHARLES   RIVER   BRIDGE   V.   WARREN   BRIDGE. 

the  spirit  of  monopoly,  and  exclusive  privileges  in  nature  of  monopo- 
lies, and  confining  corporations  to  the  privileges  plainly  given  to  them 
in  their  charter ;  the  courts  of  this  countiy  should  be  found  enlarging 
these  privileges  by  implication  ;  and  construing  a  statute  more  unfavor- 
ably to  the  public,  and  to  the  rights  of  the  communit}',  than  would  be 
done  in  a  like  case  in  an  English  court  of  justice. 

But  we  are  not  now  left  to  determine,  for  the  first  time,  the  rules  by 
which  public  grants  are  to  be  construed  in  this  countiy.  The  subject 
has  alreadj*  been  considered  in  this  court;  and  the  rule  of  construction, 
above  stated,  fully  established. 

[After  referring  to  U.  S.  v.  Arredondo,  6  Peters,  738 ;  Jackson  v. 
Lamphire,  3  Peters,  289  ;  and  .Beaty  v.  Lessee  ofJZnowles,  4  Peters, 
168  ;  the  opinion  proceeds.] 

But  the  case  most  analogous  to  this,  and  in  which  the  question  came 
more  directly  before  the  court,  is  the  case  of  the  Providence  Bank  v. 
Billings  and  Pittman,  4  Pet.  514,  and  which  was  decided  in  1830.  In 
that  case,  it  appeared  that  the  legislature  of  Rhode  Island  had  char- 
tered the  bank,  in  the  usual  form  of  such  acts  of  incorporation.  The 
charter  contained  no  stipulation  on  the  part  of  the  State,  that  it  would 
not  impose  a  tax  on  the  bank,  nor  any  reservation  of  the  right  to  do  so. 
It  was  silent  on  this  point.  Afterwards,  a  law  was  passed,  imposing  a 
tax  on  all  banks  in  the  State ;  and  the  right  to  impose  this  tax  was 
resisted  by  the  Providence  Bank,  upon  the  ground  that,  if  the  State 
could  impose  a  tax,  it  might  tax  so  heavily  as  to  render  the  franchise 
of  no  value,  and  destro}'  the  institution ;  that  the  charter  was  a  con- 
tract, and  that  a  power  which  may  in  effect  destroy  the  charter  is  in- 
consistent with  it,  and  is  impliedly  renounced  by  granting  it.  But  the 
court  said  that  the  taxing  power  was  of  vital  importance,  and  essential 
to  the  existence  of  government ;  and  that  the  relinquishment  of  such 
a  power  is  never  to  be  assumed.  And  in  delivering  the  opinion  of 
the  court,  the  late  chief  justice  states  the  principle,  in  the  following 
clear  and  emphatic  language.  Speaking  of  the  taxing  power,  he  says, 
"as  the  whole  community  is  interested  in  retaining  it  undiminished, 
that  community  has  a  right  to  insist  that  its  abandonment  ought  not  to 
be  presumed,  in  a  case  in  which  the  deliberate  purpose  of  the  State  to 
abandon  it  does  not  appear."  The  case  now  before  the  court,  is,  in 
principle,  precisely  the  same.  It  is  a  charter  from  a  State.  The  act  of 
incorporation  is  silent  in  relation  to  the  contested  power.  The  argu- 
ment in  favor  of  the  proprietors  of  the  Charles  River  Bridge,  is  the 
same,  almost  in  words,  with  that  used  by  the  Providence  Bank  ;  that  is, 
that  the  power  claimed  by  the  State,  if  it  exists,  may  be  so  used  as  to 
destroy  the  value  of  the  franchise  they  have  granted  to  the  corporation. 
The  argument  must  receive  the  same  answer ;  and  the  fact  that  the 
power  has  been  alread}*  exercised  so  as  to  destroy  the  value  of  the 
franchise,  cannot  in  any  degree  affect  the  principle.  The  existence  of 
the  power  does  not,  and  cannot  depend  upon  the  circumstance  of  its 
having  been  exercised  or  not 


CHARLES   RIVER   BRIDGE   V.   WARREN   BRIDGE.  161 

It  may,  perhaps,  be  said,  that  in  the  case  of  the  Providence  Bank, 
this  court  were  speaking  of  the  taxing  power  ;  which  is  of  vital  impor- 
tance to  the  very  existence  of  every  government.  But  the  object  and 
end  of  all  government  is  to  promote  the  happiness  and  prosperity  of 
the  communit}'  bj-  which  it  is  established  ;  and  it  can  never  be  assumed, 
that  the  government  intended  to  diminish  its  power  of  accomplishing 
the  end  for  which  it  was  created.  And  in  a  countr}"  like  ours,  free, 
active,  and  enterprising,  continually  advancing  in  numbers  and  wealth, 
new  channels  of  communication  are  daily  found  necessar}',  both  for 
travel  and  trade ;  and  are  essential  to  the  comfort,  convenience,  and 
prosperity  of  the  people.  A  State  ought  never  to  be  presumed  to  sur- 
render this  power,  because,  like  the  taxing  power,  the  whole  community 
have  an  interest  in  preserving  it  undiminished.  And  when  a  corpora- 
tion alleges,  that  a  State  has  surrendered  for  seventy  years,  its  power 
of  improvement  and  public  accommodation,  in  a  great  and  important 
line  of  travel,  along  which  a  vast  number  of  its  citizens  must  daily 
pass;  the  community  have  a  right  to  insist,  in  the  language  of  this 
court  above  quoted,  "  that  its  abandonment  ought  not  to  be  presumed, 
in  a  case,  in  which  the  deliberate  purpose  of  the  State  to  abandon  it 
does  not  appear."  The  continued  existence  of  a  government  would  be 
of  no  great  value,  if  by  implications  and  presumptions,  it  was  disarmed 
of  the  powers  necessaiy  to  accomplish  the  ends  of  its  creation  ;  and  the 
functions  it  was  designed  to  perform,  transferred  to  the  hands  of  priv- 
ileged corporations.  The  rule  of  construction  announced  by  the  court, 
was  not  confined  to  the  taxing  power ;  nor  is  it  so  limited  in  the 
opinion  delivered.  On  the  contrary,  it  was  distincth*  placed  on  the 
ground  that  the  interests  of  the  community  were  concerned  in  preserv- 
ing, undiminished,  the  power  then  in  question ;  and  whenever  any 
power  of  the  State  is  said  to  be  surrendered  or  diminished,  whether  it 
be  the  taxing  power  or  any  other  affecting  the  public  interest,  the  same 
principle  applies,  and  the  rule  of  construction  must  be  the  same.  No 
one  will  question  that  the  interests  of  the  great  bod}-  of  the  people  of 
the  State,  would,  in  this  instance,  be  affected  by  the  surrender  of  this 
great  line  of  travel  to  a  single  corporation,  with  the  right  to  exact  toll,  ^ 
and  exclude  competition  for  sevent}-  years.  While  the  rights  of  private 
property  are  sacredly  guarded,  we  must  not  forget  that  the  community 
also  have  rights,  and  that  the  happiness  and  well-being  of  every  citizen 
depends  on  their  faithful  preservation. 

Adopting  the  rule  of  construction  above  stated  as  the  settled  one,  we 
proceed  to  apply  it  to  the  charter  of  1785,  to  the  proprietors  of  the 
Charles  River  Bridge.  This  act  of  incorporation  is  in  the  usual  form, 
and  the  privileges  such  as  are  commonly  given  to  corporations  of  that 
kind.  It  confers  on  them  the  ordinary  faculties  of  a  corporation,  for 
the  purpose  of  building  the  bridge  ;  and  establishes  certain  rates  of  toll, 
which  the  company  are  authorized  to  take.  This  is  the  whole  grant. 
There  is  no  exclusive  privilege  given  to  them  over  the  waters  of  Charles 
River,  above  or  below  their  bridge.  No  right  to  erect  another  bridge 

11 


162  CHARLES   RIVER   BRIDGE   V.   WARREN   BRIDGE. 

themselves,  nor  to  prevent  other  persons  from  erecting  one.  No 
engagement  from  the  State  that  another  shall  not  be  erected ;  and  no 
undertaking  not  to  sanction  competition,  nor  to  make  improvements 
that  may  diminish  the  amount  of  its  income.  Upon  all  these  sub- 
jects the  charter  is  silent ;  and  nothing  is  said  in  it  about  a  line  of 
travel,  so  much  insisted  on  in  the  argument,  in  which  they  are  to  have 
exclusive  privileges.  No  words  are  used,  from  which  an  intention  to 
grant  any  of  these  rights  can  be  inferred.  If  the  plaintiff  is  entitled  to 
them,  it  must  be  implied,  simply,  from  the  nature  of  the  grant ;  and 
cannot  be  inferred  from  the  words  by  which  the  grant  is  made. 

The  relative  position  of  the  Warren  Bridge  has  already  been  de- 
scribed. It  does  not  interrupt  the  passage  over  the  Charles  River 
Bridge,  nor  make  the  wa}r  to  it  or  from  it  less  convenient.  None  of 
the  faculties  or  franchises  granted  to  that  corporation  have  been  re- 
voked by  the  legislature,  and  its  right  to  take  the  tolls  granted  by  the 
charter  remains  unaltered.  In  short,  all  the  franchises  and  rights  of 
property  enumerated  in  the  charter,  and  there  mentioned  to  have  been 
granted  to  it,  remain  unimpaired.  But  its  income  is  destroyed  by  the 
Warren  Bridge ;  which,  being  free,  draws  off  the  passengers  and  prop- 
erty which  would  have  gone  over  it,  and  renders  their  franchise  of  no 
value.  This  is  the  gist  of  the  complaint.  For  it  is  not  pretended  that 
the  erection  of  the  Warren  Bridge  would  have  done  them  any  injury,  or 
in  any  degree  affected  their  right  of  propert}',  if  it  had  not  diminished 
the  amount  of  their  tolls.  In  order  then  to  entitle  themselves  to  relief, 
it  is  necessar}-  to  show  that  the  legislature  contracted  not  to  do  the  act 
of  which  the}-  complain,  and  that  the}T  impaired,  or,  in  other  words, 
violated  that  contract  by  the  erection  of  the  Warren  Bridge. 

The  inquir}7  then  is,  Does  the  charter  contain  such  a  contract  on  the 
part  of  the  State?  Is  there  amr  such  stipulation  to  be  found  in  that 
instrument?  It  must  be  admitted  on  all  hands  that  there  is  none, — 
no  words  that  even  relate  to  another  bridge,  or  to  the  diminution  of 
their  tolls,  or  to  the  line  of  travel.  If  a  contract  on  that  subject  can 
be  gathered  from  the  charter,  it  must  be  by  implication,  and  cannot  be 
found  in  the  words  used.  Can  such  an  agreement  be  implied?  The 
rule  of  construction  before  stated  is  an  answer  to  the  question.  In 
charters  of  this  description,  no  rights  are  taken  from  the  public,  or 
given  to  the  corporation,  be}Tond  those  which  the  words  of  the  charter, 
by  their  natural  and  proper  construction,  purport  to  convey.  There 
are  no  words  which  import  such  a  contract  as  the  plaintiffs  in  error 
contend  for,  and  none  can  be  implied  ;  and  the  same  answer  must  be 
given  to  them  that  was  given  by  this  court  to  the  Providence  Bank. 
4  Pet.  514.  The  whole  community  are  interested  in  this  inquiry,  and 
they  have  a  right  to  require  that  the  power  of  promoting  their  comfort 
and  convenience,  and  of  advancing  the  public  prosperity,  b}T  providing 
safe,  convenient,  and  cheap  ways  for  the  transportation  of  produce  and 
the  purposes  of  travel,  shall  not  be  construed  to  have  been  surrendered 
or  diminished  by  the  State,  unless  it  shall  appear  by  plain  words  that 
it  was  intended  to  be  done. 


CHARLES   RIVER   BRIDGE   V.   WARREN   BRIDGE.  163 

But  the  case  before  the  court  is  even  still  stronger  against  an)'  such 
implied  contract  as  the  plaintiffs  in  error  contend  for.  The  Charles 
River  Bridge  was  completed  in  1786.  The  time  limited  for  the  dura- 
tion of  the  corporation,  by  their  original  charter,  expired  in  1826. 
When,  therefore,  the  law  passed  authorizing  the  erection  of  the  Warren 
Bridge,  the  proprietors  of  Charles  River  Bridge  held  their  corporate 
existence  under  the  law  of  1792,  which  extended  their  charter  for 
thirty  }'ears  ;  and  the  rights,  privileges,  and  franchises  of  the  company, 
must  depend  upon  the  construction  of  the  last-mentioned  law,  taken  in 
connection  with  the  act  of  1785. 

The  act  of  1792,  which  extends  the  charter  of  this  bridge,  incorpo- 
rates another  company  to  build  a  bridge  over  Charles  River ;  furnish- 
ing another  communication  with  Boston,  and  distant  only  between  one 
and  two  miles  from  the  old  bridge. 

The  first  six  sections  of  this  act  incorporate  the  proprietors  of  the 
West  Boston  Bridge,  and  define  the  privileges,  and  describe  the  duties 
of  that  corporation.  In  the  7th  section  there  is  the  following  recital : 
"  And  whereas  the  erection  of  Charles  River  Bridge  was  a  work  of 
hazard  and  public  utilit}1,  and  another  bridge  in  the  place  of  West 
Boston  Bridge  may  diminish  the  emoluments  of  Charles  River  Bridge  ; 
therefore,  for  the  encouragement  of  enterprise,"  they  proceed  to  extend 
the  charter  of  the  Charles  River  Bridge,  and  to  continue  it  for  the  term 
of  seventy  years  from  the  day  the  bridge  was  completed,  subject  to  the 
conditions  prescribed  in  the  original  act,  and  to  be  entitled  to  the  same 
tolls.  It  appears,  then, that  by  the  same  act'that  extended  this  charter, 
the  legislature  established  another  bridge,  which  they  knew  would  lessen 
its  profits  ;  and  this,  too,  before  the  expiration  of  the  first  charter,  and 
only  seven  years  after  it  was  granted  ;  thereby  showing,  that  the  State 
did  not  suppose  that,  by  the  terms  it  had  used  in  the  first  law,  it  had 
deprived  itself  of  the  power  of  making  such  public  improvements  as 
might  impair  the  profits  of  the  Charles  River  Bridge ;  and  from  the 
language  used  in  the  clauses  of  the  law  by  which  the  charter  is  extended, 
it  would  seem  that  the  legislature  were  especially  careful  to  exclude 
any  inference  that  the  extension  was  made  upon  the  ground  of  com- 
promise with  the  bridge  compan}-,  or  as  a  compensation  for  rights 
impaired. 

On  the  contrar}7,  words  are  cautiousl}*  employed  to  exclude  that  con- 
clusion ;  and  the  extension  is  declared  to  be  granted  as  a  reward  for 
the  hazard  the}*  had  run,  and  "  for  the  encouragement  of  enterprise." 
The  extension  was  given  because  the  compan}'  had  undertaken  and 
executed  a  work  of  doubtful  success  ;  and  the  improvements  which  the 
legislature  then  contemplated,  might  diminish  the  emoluments  they  had 
expected  to  receive  from  it.  It  results  from  this  statement,  that  the 
legislature,  in  the  very  law  extending  the  charter,  asserts  its  rights  to 
authorize  improvements  over  Charles  River  which  would  take  off  a  por- 
tion of  the  travel  from  this  bridge  and  diminish  its  profits  ;  and  the 
bridge  company  accept  the  renewal  thus  given,  »and  thus  carefully  con- 


164  CHAKLES   RIVER   BRIDGE   V.   WARREX   BRIDGE. 

nected  with  this  assertion  of  the  right  on  the  part  of  the  State.  Can 
they,  when  holding  their  corporate  existence  under  this  law,  and  deriv- 
ing their  franchises  altogether  from  it,  add  to  the  privileges  expressed 
in  their  charter  an  implied  agreement  which  is  in  direct  conflict  with  a 
portion  of  the  law  from  which  the}'  derive  their  corporate  existence? 
Can  the  legislature  be  presumed  to  have  taken  upon  themselves  an  im- 
plied obligation,  contrary  to  its  own  acts  and  declarations  contained  in 
the  same  law?  It  would  be  difficult  to  find  a  case  justifying  such  an 
implication,  even  between  individuals ;  still  less  will  it  be  found  where 
sovereign  rights  are  concerned,  and  where  the  interests  of  a  whole  com- 
munity would  be  deeply  affected  by  such  an  implication.  It  would, 
indeed,  be  a  strong  exertion  of  judicial  power,  acting  upon  its  own 
views  of  what  justice  required,  and  the  parties  ought  to  have  done,  to 
raise,  by  a  sort  of  judicial  coercion,  an  implied  contract,  and  infer  from 
it  the  nature  of  the  very  instrument  in  which  the  legislature  appear  to 
have  taken  pains  to  use  words  which  disavow  and  repudiate  any  inten- 
tion, on  the  part  of  the  State,  to  make  such  a  contract. 

Indeed,  the  practice  and  usage  of  almost  ever}-  State  in  the  Union, 
old  enough  to  have  commenced  the  work  of  internal  improvement,  is 
opposed  to  the  doctrine  contended  for  on  the  part  of  the  plaintiffs  in 
error.  Turnpike  roads  have  been  made  in  succession  on  the  same  line 
of  travel ;  the  later  ones  interfering  materially  with  the  profits  of  the 
first.  These  corporations  have,  in  some  instances,  been  utterly  ruined 
by  the  introduction  of  newer  and  better  modes  of  transportation  and 
travelling.  In  some  cases,  railroads  have  rendered  the  turnpike  roads 
on  the  same  line  of  travel  so  entirely  useless,  that  the  franchise  of  the 
turnpike  corporation  is  not  worth  preserving.  Yet  in  none  of  these 
cases  have  the  corporation  supposed  that  their  privileges  were  invaded, 
or  any  contract  violated  on  the  part  of  the  State.  Arnid  the  multitude 
of  cases  which  have  occurred,  and  have  been  daily  occurring  for  the 
last  fort}'  or  fifty  years,  this  is  the  first  instance  in  which  such  an  im- 
plied contract  has  been  contended  for,  and  this  court  called  upon  to 
infer  it  from  an  ordinary  act  of  incorporation,  containing  nothing  more 
than  the  usual  stipulations  and  provisions  to  be  found  in  every  such 
law.  The  absence  of  any  such  controversy,  when  there  must  have 
been  so  many  occasions  to  give  rise  to  it,  proves  that  neither  States, 
nor  individuals,  nor  corporations,  ever  imagined  that  such  a  contract 
could  be  implied  from  such  charters.  It  shows  that  the  men  who  voted 
for  these  laws,  never  imagined  that  they  were  forming  such  a  contract ; 
and  if  we  maintain  that  they  have  made  it,  we  must  create  it  by  a  legal 
fiction,  in  opposition  to  the  truth  of  the  fact,  and  the  obvious  intention 
of  the  party.  We  cannot  deal  thus  with  the  rights  I'eserved  to  the 
States,  and  by  legal  intendments  and  mere  technical  reasoning,  take 
away  from  them  any  portion  of  that  power  over  their  own  internal 
police  and  improvement,  which  is  so  necessary  to  their  well  being  and 
prosperity. 

And  what  would  be  the  fruits  of  this  doctrine  of  implied  contracts  on 


CHAELES   RIVER   BRIDGE   V.   WARREN   BRIDGE.  165 

the  part  of  the  States,  and  of  property  in  a  line  of  travel  by  a  corpora- 
tion, if  it  should  now  be  sanctioned  by  this  court?  To  what  results 
would  it  lead  us?  If  it  is  to  be  found  in  the  charter  to  this  bridge,  the 
same  process  of  reasoning  must  discover  it  in  the  various  acts  which 
have  been  passed,  within  the  last  forty  years,  for  turnpike  companies. 
And  what  is  to  be  the  extent  of  the  privileges  of  exclusion  on  the  dif- 
ferent sides  of  the  road?  The  counsel  who  have  so  ably  ai'gued  this 
case,  have  not  attempted  to  define  it  by  any  certain  boundaries.  How 
far  must  the  new  improvement  be  distant  from  the  old  one?  How  near 
may  you  approach  without  invading  its  rights  in  the  privileged  line? 
If  this  court  should  establish  the  principles  now  contended  for,  what  is 
to  become  of  the  numerous  railroads  established  on  the  same  line  of 
travel  with  turnpike  companies ;  and  which  have  rendered  the  fran- 
chises of  the  turnpike  corporations  of  no  value?  Let  it  once  be  under- 
stood that  such  charters  carry  with  them  these  implied  contracts,  and 
give  this  unknown  and  undefined  property  in  a  line  of  travelling,  and 
you  will  soon  find  the  old  turnpike  corporations  awakening  from  their 
sleep,  and  calling  upon  this  court  to  put  down  the  improvements  which 
have  taken  their  place.  The  millions  of  property  which  have  been 
invested  in  railroads  and  canals,  upon  lines  of  travel  which  had  been 
before  occupied  by  turnpike  corporations,  will  be  put  in  jeopard}'.  We 
shall  be  thrown  hack  to  the  improvements  of  the  last  century,  and 
obliged  to  stand  still,  until  the  claims  of  the  old  turnpike  corporations 
shall  be  satisfied,  and  they  shall  consent  to  permit  these  States  to  avail 
themselves  of  the  lights  of  modern  science,  and  to  partake  of  the  bene- 
fit of  those  improvements  which  are  now  adding  to  the  wealth  and 
prosperity,  and  the  convenience  and  comfort  of  every  other  part  of  the 
civilized  world.  Nor  is  this  all.  This  court  will  find  itself  compelled 
to  fix,  by  some  arbitrary  rule,  the  width  of  this  new  kind  of  property 
in  a  line  of  travel ;  for  if  such  a  right  of  property  exists,  we  have  no 
lights  to  guide  us  in  marking  out  its  extent,  unless,  indeed,  we  resort 
to  the  old  feudal  grants,  and  to  the  exclusive  rights  of  ferries,  by  pre- 
scription, between  towns ;  and  are  prepared  to  decide  that  when  a 
turnpike  road  from  one  town  to  another  had  been  made,  no  railroad  or 
canal,  between  these  two  points,  could  afterwards  be  established.  This 
court  are  not  prepared  to  sanction  principles  which  must  lead  to  such 
results. 

Many  other  questions  of  the  deepest  importance  have  been  raised 
and  elaborately  discussed  in  the  argument.  It  is  not  necessary  for  the 
decision  of  this  case,  to  express  our  opinion  upon  them  ;  and  the  court 
deem  it  proper  to  avoid  volunteering  an  opinion  on  an}'  question,  in- 
volving the  construction  of  the  constitution,  where  the  case  itself  does 
not  bring  the  question  directly  before  them,  and  make  it  their  duty  to 
decide  upon  it. 

Some  questions,  also,  of  a  purely  technical  character,  have  been 
made  and  argued,  as  to  the  form  of  proceeding  and  the  right  to  relief. 
But  enough  appears  on  the  record,  to  bring  out  the  great  question  in 


166  CHARLES   RIVER   BRIDGE   V.   WARREN   BRIDGE. 

contest;  and  it  is  the  interest  of  all  parties  concerned,  that  the  real 
controversy  should  be  settled  without  further  delay ;  and  as  the  opinion 
of  the  court  is  pronounced  on  the  main  question  in  dispute  here,  and 
disposes  of  the  whole  case,  it  is  altogether  unnecessary  to  enter  upon 
the  examination  of  the  forms  of  proceeding,  in  which  the  parties  have 
brought  it  before  the  court. 

The  judgment  of  the  supreme  judicial  court  of  the  commonwealth  of 
Massachusetts,  dismissing  the  plaintiffs'  bill,  must,  therefore,  be  affirmed, 
with  costs. 

[McLEAN,  J.  delivered  an  opinion  in  favor  of  dismissing  the  bill  for 
want  of  jurisdiction.  STORY,  J.  delivered  an  opinion  dissenting  from 
the  conclusions  of  TANEY,  C.  J.  THOMPSON,  J.  concurred  in  the 
views  of  STORY,  J.  The  following  extracts  are  from  the  opinion  of 
STORY,  J.] 

STORY,  J.  .  .  .  It  is  a  well-known  rule  in  the  construction  of  private 
grants,  if  the  meaning  of  the  words  be  doubtful,  to  construe  them  most 
strongly  against  the  grantor.  But  it  is  said  that  an  opposite  rule  pre- 
vails in  cases  of  grants  by  the  king ;  for  where  there  is  any  doubt,  the 
construction  is  made  most  favorably  for  the  king,  and  against  the 
grantee.  The  rule  is  not  disputed.  But  it  is  a  rule  of  very  limited 
application.  To  what  cases  does  it  apply  ?  To  such  cases  only  where 
there  is  a  real  doubt;  where  the  grant  admits  of  two  interpretations, 
one  of  which  is  more  extensive,  and  the  other  more  restricted ;  so  that 
a  choice  is  fairly  open,  and  either  may  be  adopted  without  any  violation 
of  the  apparent  objects  of  the  grant.  If  the  king's  grant  admits  of  two 
interpretations,  one  of  which  will  make  it  utterly  void  and  worthless, 
and  the  other  will  give  it  a  reasonable  effect,  then  the  latter  is  to  pre- 
vail, for  the  reason,  (says  the  common  law,)  "that  it  will  be  more  for 
the  benefit  of  the  subject,  and  the  honor  of  the  king,  which  is  to  be 
more  regarded  than  his  profit."  Com.  Dig.  Grant,  G.  12;  9  Co.  R. 
131,  a;  10  Co.  R.  67,  b;  6  Co.  R.  6.  And  in  every  case  the  rule  is 
made  to  bend  to  the  real  justice  and  integrity  of  the  case.  No  strained 
or  extravagant  construction  is  to  be  made  in  favor  of  the  king.  And 
if  the  intention  of  the  grant  is  obvious,  a  fair  and  liberal  interpretation 
of  its  terms  is  enforced. 

But  what,  I  repeat,  is  most  material  to  be  stated,  is,  that  all  this 
doctrine  in  relation  to  the  king's  prerogative  of  having  a  construction 
in  his  own  favor,  is  exclusively  confined  to  cases  of  mere  donation, 
flowing  from  the  bounty  of  the  crown.  Whenever  the  grant  is  upon  a 
valuable  consideration,  the  rule  of  construction  ceases ;  and  the  grant 
is  expounded  exactly  as  it  would  be  in  the  case  of  a  private  grant, 
favorably  to  the  grantee.  Why  is  this  rule  adopted  ?  Plainly,  because 
the  grant  is  a  contract,  and  is  to  be  interpreted  according  to  its  fair 
meaning.  It  would  be  to  the  dishonour  of  the  government,  that  it 


CHARLES   RIVER   BRIDGE   V.   WARREN   BRIDGE.  167 

should  pocket  a  fair  consideration,  and  then  quibble  as  to  the  obscuri- 
ties and  implications  of  its  own  contract. 

If,  then,  the  present  were  the  case  of  a  royal  grant,  I  should  most 
strenuously  contend,  both  upon  principle  and  authority,  that  it  was  to 
receive  a  liberal,  and  not  a  strict,  construction.  I  should  so  contend 
upon  the  plain  intent  of  the  charter,  from  its  nature  and  objects,  and 
from  its  burdens  and  duties.  It  is  confessedly  a  case  of  contract,  and 
not  of  bounty  ;  a  case  of  contract  for  a  valuable  consideration  ;  for  ob- 
jects of  public  utility  ;  to  encourage  enterprise  ;  to  advance  the  public 
convenience;  and  to  secure  a  just  remuneration  for  large  outlays  of 
private  capital.  What  is  there  in  such  a  grant  of  the  crown,  which 
should  demand  from  any  court  of  justice  a  narrow  and  strict  interpreta- 
tion of  its  terms  ? 

The  present,  however,  is  not  the  case  of  a  ro}*al  grant,  but  of  a 
legislative  grant,  by  a  public  statute.  The  rules  of  the  common  law 
in  relation  to  royal  grants,  have,  therefore,  in  reality,  nothing  to  do 
with  the  case.  "We  are  to  give  this  act  of  incorporation  a  rational  and 
fair  construction,  according  to  the  general  rules  which  govern  in  all 
cases  of  the  exposition  of  public  statutes.  We  are  to  ascertain  the 
legislative  intent ;  and  that  once  ascertained,  it  is  our  duty  to  give  it  a 
full  and  liberal  operation. 

What  solid  ground  is  there  to  say,  that  the  words  of  a  grant  in  the 
mouth  of  a  citizen,  shall  mean  one  thing,  and  in  the  mouth  of  the  legis- 
lature shall  mean  another  thing?  That,  in  regard  to  the  grant  of  a 
citizen,  every  word  shall,  in  case  of  any  question  of  interpretation  or 
implication,  be  construed  against  him,  and  in  regard  to  the  grant  of  the 
government,  every  word  shall  be  construed  in  its  favor?  That  language 
shall  be  construed,  not  according  to  its  natural  import  and  implications 
from  its  own  proper  sense,  and  the  objects  of  the  instrument ;  but  shall 
change  its  meaning,  as  it  is  spoken  by  the  whole  people,  or  by  one  of 
them  ?  There  may  be  very  solid  grounds  to  say,  that  neither  grants  nor 
charters  ought  to  be  extended  beyond  the  fair  reach  of  their  words ; 
and  that  no  implications  ought  to  be  made  which  are  not  clearly  de- 
ducible  from  the  language  and  the  nature  and  objects  of  the  grant. 

There  is  great  virtue  in  particular"  phrases ;  and  when  it  is  once  sug- 
gested, that  a  grant  is  of  the  nature  or  tendenc}1  of  a  monopoly,  the 
mind  almost  instantaneously  prepares  itself  to  reject  every  construction 
which  does  not  pare  it  down  to  the  narrowest  limits.  It  is  an  honest 
prejudice,  which  grew  up  in  former  times  from  the  gross  abuses  of  the 
ro}'al  prerogatives ;  to  which  in  America,  there  are  no  analogous  au- 
thorities. But  what  is  a  monopoty,  as  understood  in  law?  It  is  an 
exclusive  right  granted  to  a  few,  of  something  which  was  before  of 
common  right. 


168  CHARLES   RIVER   BRIDGE   V.    WARREN   BRIDGE. 

No  sound  lawyer  will,  I  presume,  assert  that  the  grant  of  a  right  to 
erect  a  bridge  over  a  navigable  stream,  is  a  grant  of  a  common  right. 
Before  such  grant,  had  all  the  citizens  of  the  State  a  right  to  erect 
bridges  over  navigable  streams?  Certainly  they  had  not;  and,  there- 
fore, the  grant  was  no  restriction  of  an}"  common  right.  It  was  neither 
a  monopoly ;  nor  in  a  legal  sense,  had  it  any  tendency  to  a  monopoly. 
It  took  from  no  citizen  what  he  possessed  before  ;  and  had  no  tendency 
to  take  it  from  him.  It  took,  indeed,  from  the  legislature  the  power  of 
granting  the  same  identical  privilege  or  franchise  to  any  other  persons. 
But  this  made  it  no  more  a  monopoly,  than  the  grant  of  the  public  stock 
or  funds  of  a  State  for  a  valuable  consideration.  Even  in  cases  of 
monopolies,  strictly  so  called,  if  the  nature  of  the  grant  be  such  that  it 
is  for  the  public  good,  as  in  cases  of  patents  for  inventions,  the  rule 
has  always  been  to  give  them  a  favorable  construction  in  support  of  the 
patent,  as  Lord  Chief  Justice  Eyre  said,  ut  res  magis  valeat  quam 
pereat;  Boulton  v.  Bull,  2  H.  Bl.  463,  500. 

Taking  this  to  be  a  grant  of  a  right  to  build  a  bridge  over  Charles 
River,  in  the  place  where  the  old  ferry  between  Charlestown  and  Boston 
was  then  kept,  (as  is  contended  for  03"  the  defendants,)  still  it  has,  as 
all  such  grants  must  have,  a  fixed  locality ;  and  the  same  question 
meets  us,  is  the  grant  confined  to  the  mere  right  to  erect  a  bridge  on 
the  proper  spot,  and  to  take  toll  of  the  passengers  who  may  pass  over 
it,  without  an}'  exclusive  franchise  on  either  side  of  the  local  limits  of 
the  bridge  ?  Or  does  it,  by  implication,  include  an  exclusive  franchise 
on  each  side,  to  an  extent  which  shall  shut  out  any  injurious  compe- 
tition? In  other  words,  does  the  grant  still  leave  the  legislature  at 
liberty  to  erect  other  bridges  on  either  side,  free  or  with  tolls,  even  in 
juxtaposition  with  the  timbers  and  planks  of  this  bridge?  Or  is  there 
an  implied  obligation,  on  the  part  of  the  legislature,  to  abstain  from  all 
acts  of  this  sort  which  shall  impair  or  destroy  the  value  of  the  grant? 
The  defendants  contend  that  the  exclusive  right  of  the  plaintiffs  extends 
no  further  than  the  planks  and  timbers  of  the  bridge,  and  that  the 
legislature  is  at  full  liberty  to  grant  any  new  bridge,  however  near; 
and  although  it  may  take  away  a  large  portion,  or  even  the  whole  of 
the  travel  which  would  otherwise  pass  over  the  bridge  of  the  plaintiffs. 
And  to  this  extent  the  defendants  must  contend  ;  for  their  bridge  is,  to 
all  intents  and  purposes,  in  a  legal  and  practical  sense,  contiguous  to 
that  of  the  plaintiffs. 

The  argument  of  the  defendants  is,  that  the  plaintiffs  are  to  take 
nothing  by  implication.  Either  (say  they)  the  exclusive  grant  extends 
only  to  the  local  limits  of  the  bridge,  or  it  extends  the  whole  length  of 
the  river,  or  at  least  up  to  Old  Cambridge  bridge.  The  latter  con- 
struction would  be  absurd  and  monstrous,  and  therefore  the  former 
must  be  the  true  one.  Now,  I  utterly  deny  the  alternatives  involved 
in  the  dilemma.  The  right  to  build  a  bridge  over  a  river,  and  to  take 
toll,  ma}-  well  include  an  exclusive  franchise  beyond  the  local  limits  of 


CHARLES  RIVER   BRIDGE  V.   WARREN  BRIDGE.  169 

the  bridge,  and  yet  not  extend  through  the  whole  course  of  the  river, 
or  even  to  any  considerable  distance  on  the  river.  There  is  no  diffi- 
culty in  common  sense  or  in  law  in  maintaining  such  a  doctrine.  But 
then,  it  is  asked,  what  limits  can  be  assigned  to  such  a  franchise?  The 
answer  is  obvious ;  the  grant  carries  with  it  an  exclusive  franchise  to 
a  reasonable  distance  on  the  river,  so  that  the  ordinarj'  travel  to  the 
bridge  shall  not  be  diverted  by  an}-  new  bridge  to  the  injury  or  ruin  of 
the  franchise.  A  new  bridge  which  would  be  a  nuisance  to  the  old 
bridge,  would  be  within  the  reach  of  its  exclusive  right.  The  question 
would  not  be  so  much  as  to  the  fact  of  distance,  as  it  would  be  as  to 
the  fact  of  nuisance.  There  is  nothing  new  in  such  expositions  of 
incorporeal  rights,  and  nothing  new  in  thus  administering,  upon  this 
foundation,  remedies  in  regard  thereto.  The  doctrine  is  coeval  with 
the  common  law  itself.  Suppose  an  action  is  brought  for  shutting  up 
the  ancient  lights  belonging  to  a  messuage,  or  for  diverting  a  water- 
course, or  for  flowing  back  a  stream,  or  for  erecting  a  nuisance  near 
a  dwelling-house ;  the  question  in  such  cases  is  not  a  question  of 
mere  distance,  of  mere  feet  and  inches,  but  of  injury  ;  permanent,  real, 
and  substantial  injury,  to  be  decided  upon  all  the  circumstances  of 
the  case. 

But  it  is  said  that  there  is  no  prohibitory  covenant  in  the  charter, 
and  no  implications  are  to  be  made  of  any  such  prohibition.  The  pro- 
prietors are  to  stand  upon  the  letter  of  their  contract,  and  the  maxim 
applies,  de  non  apparentibus  et  non  existentibus,  eadem  est  lex.  And 
yet  it  is  conceded,  that  the  legislature  cannot  revoke  or  resume  this 
grant.  Why  not,  I  pray  to  know?  There  is  no  negative  covenant  in 
the  charter ;  there  is  no  express  prohibition  to  be  found  there.  The 
reason  is  plain.  The  prohibition  arises  by  a  natural,  if  not  In*  neces- 
sary implication.  It  would  be  against  the  first  principles  of  justice  to 
presume  that  the  legislature  reserved  a  right  to  destro}-  its  own  grant. 
That  was  the  doctrine  of  Fletcher  v.  Peck,  6  Cranch,  87,  in  this  court, 
and  in  other  cases  turning  upon  the  same  great  principle  of  political 
and  constitutional  duty  and  right.  Can  the  legislature  have  power  to 
do  that  indirectly  which  it  cannot  do  directly?  If  it  cannot  take  away 
or  resume  the  franchise  itself,  can  it  take  away  its  whole  substance  and 
value?  If  the  law  will  create  an  implication  that  the  legislature  shall 
not  resume  its  own  grant,  is  it  not  equally  as  natural  and  as  necessary 
an  implication,  that  the  legislature  shall  not  do  any  act  directly  to  pre- 
judice its  own  grant  or  to  destroy  its  value? 

But  then  again,  it  is  said,  that  all  this  rests  upon  implication,  and 
not  upon  the  words  of  the  charter.  I  admit  that  it  does  ;  but  I  again 
sa}',  that  the  implication  is  natural  and  necessaiy.  It  is  indispensable 
to  the  proper  effect  of  the  grant.  The  franchise  cannot  subsist  without 
it,  at  least  for  any  valuable  or  practical  purpose.  What  objection  can 
there  be  to  implications,  if  they  arise  from  the  very  nature  and  objects 


170  THE   BINGHAMTON   BRIDGE. 

of  the  grant?  If  it  be  indispensable  to  the  full  enjoyment  of  the  right 
to  take  toll,  that  it  should  be  exclusive  within  certain  limits,  is  it  not 
just  and  reasonable,  that  it  should  be  so  construed?.  If  the  legislative 
power  to  erect  a  new  bridge  would  annihilate  a  franchise  alread}'  granted, 
is  it  not,  unless  expressly  reserved,  necessarily  excluded  b}T  intendraent 
of  law  ?  Can  any  reservations  be  raised  by  mere  implication  to  defeat 
the  operation  of  a  grant,  especially  when  such  a  reservation  would  be 
coextensive  with  the  whole  right  granted,  and  amount  to  the  reserva- 
tion of  a  right  to  recall  the  whole  grant  ? 

The  truth  is,  that  the  whole  argument  of  the  defendants  turns  upon 
an  implied  reservation  of  power  in  the  legislature  to  defeat  and  destroy 
its  own  grant. 


THE  BINGHAMTON   BRIDGE. 
[CHENANGO   BRIDGE  CO.  v.  BINGHAMTON   BRIDGE  CO.] 

1865.     3  Wallace  U.  S.  51. 1 

ERROR  to  the  New  York  Court  of  Appeals. 

Bill  in  equity  by  Chenango  Bridge  Co.  to  enjoin  Binghamton  Bridge 
Co.  The  plaintiff  company  was  chartered  by  Section  4  of  the  Act  of 
1808,  "  for  the  purpose  of  erecting  and  maintaining  a  toll-bridge  across 
the  Chenango  River,  at  or  near  Chenango  Point."  The  corporation 
was  "  to  have  perpetual  succession,  under  all  the  provisions,  regula- 
tions, restrictions,  clauses  and  provisions  of  the  before-mentioned  Sus- 
quehanna  Bridge  Compam*,"  (referred  to  in  Section  3  of  the  same  Act 
of  1808.)  The  latter  compan}'  was  incorporated  b}-  Section  38  of  the 
Act  of  1805,  which  gave  the  Susquehanna  Bridge  Co.  all  the  "  powers, 
rights,  privileges, :  immunities,  and  advantages,"  contained  in  the  incor- 
poration of  the  Delaware  Bridge  Co.  by  Section  31  of  the  same  Act  of 
1805.  Said  Section  31  enacted:  "  It  shall  not  be  lawful  for  am*  per- 
son or  persons  to  erect  any  bridge,  or  establish  any  fer^*  across  the  said 
west  and  east  branches  of  Delaware  River,  within  two  miles  either 
above  or  below  the  bridges  to  be  erected  and  maintained  in  pursuance 
of  this  act."  Soon  after  the  passage  of  the  Act  of  1808,  the  plaintiff 
company  built  a  toll-bridge  across  the  Chenango  River,  at  Chenango 
Point.  In  1855,  the  legislature  granted  a  charter  to  the  Binghamton 
Bridge  Co.,  purporting  to  authorize  the  building  of  a  bridge  in  close 
proximity  to  that  of  the  plaintiffs.  The  latter  company  built  a  bridge 
a  few  rods  above  the  old  one.  The  old  cornpan}-  filed  a  bill  in  the 
Supreme  Court  of  New  York  to  enjoin  the  new  company.  The  plain- 
tiffs contended  that  the  exclusive  rights  given  by  Section  31  of  the 

1  Statement  abridged.    Arguments,  and  parts  of  opinions,  omitted.  —  ED. 


THE   BINGHAMTON   BKIDGE.  171 

Act  of  1805  to  the  Delaware  Bridge  Co.  were  imported  by  Section  38 
of  that  Act  into  the  charter  of  the  Susquehanna  Co.  ;  that  these  again, 
thus  imported,  were  translated  into  Section  3  of  the  Act  of  1808  ;  and 
that  these  last  were  carried  finally  into  Section  4  of  the  latter  Act ;  thus 
making  a  contract  by  the  State  with  the  Chenango  Bridge  Co.,  that  no 
bridge  should  ever  be  built  over  the  Cheuango  River  within  two  miles 
of  their  bridge,  either  above  or  below  it. 

The  answer  denied  the  contract  thus  set  up. 

The  Supreme  Court  of  New  York  dismissed  the  bill ;  and  this  decree 
was  affirmed  by  the  Court  of  Appeals. 

Mr.  D.  S.  Dickenson,  for  Binghamton  Bridge  Co. 

Mr.  Mygatt,  contra. 

Mr.  Justice  DAVIS  delivered  the  opinion  of  the  Court.1 

The  Constitution  of  the  United  States  declares  that  no  State  shall 
pass  any  law  impairing  the  obligation  of  contracts ;  and  the  25th  sec- 
tion of  the  Judiciary  Act  provides,  that  the  final  judgment  or  decree  of 
the  highest  court  of  a  State,  in  which  a  decision  in  a  suit  can  be  had, 
may  be  examined  and  reviewed  in  this  court,  if  there  was  drawn  in 
question  in  the  suit  the  validity  of  a  statute  of  the  State,  on  the  ground 
of  its  being  repugnant  to  the  Constitution  of  the  United  States,  and 
the  decision  was  in  favor  of  its  validity. 

The  plaintiffs  in  error  brought  a  suit  in  equity  in  the  Supreme  Court 
in  New  York,  alleging  that  the}-  were  created  a  corporation  bj*  J,he 
legislature  of  that  State,  on  the  first  of  April,  1808,  to  erect  and  main- 
tain  a  bridge  across  the  Chenango  River,  at  Binghamton,  with  perpetual 
succesgion,  the  right  to  take  tolls,  and  a  covenant  that  no  other  bridge 
should  be  built  within  a  distance  of  two  miles  either  way  from  their 
bridge ;  which  was  a  grant  in  the  nature  of  a  contract  that  can- 
not  be  impaired.  __  The  complaint  of  the  bill  is,  that  notwithstanding 
the  Chenango  Bridge  Company  have  faithfully  kept  their  contract  with 
the  State,  and  maintained  for  a  period  of  nearly  fifty  years  a  safe  and 
suitable  bridge  for  the  accommodation  of  the  public,  the  legislature  of 
New  York,  on  the  fifth  of  April,  1855,  in  plain  violation  of  the  con- 
tract of  the  State  with  them,  authorized  the  defendants  to  build  a  bridge 
across  the  Chenango  River  within  the  prescribed  limits,  and  that  the 
bridge  is  built  and  open  for  travel. 

The  hip  seeks  to  obtain  a  perpetual  injunction  against  the  Bingham- 
ton Bridge  Company,  from  using  or  allowing  to  be  used  theHbridge  thiTs 
built ,  on  the  sole  ground  that  the  statute  of  the  State,  which  authorizes 
it,  is  repugnant  to  that  provision  of  the  Constitution  of  the  United 
States  which  says  that  no  State  shall  pass  any  law  impairing  the  obli- 
gation of  contracts!  Such  proceedings  were  had  in  the  inferior  courts 
of  New  York,  tluvt  the  case  finally  reached  and  was  heard  in  the  Court 
of  Appeals,  which  is  the  highest  court  of  law  or  equity  of  the  State  in 
which  a  decision  of  the  suit  could  be  had.  And  that  court  held  that 

1  Nelson,  J.,  not  sitting,  being  indisposed. 


172  THE   BINGHAMTON   BRIDGE. 

the  act,  by  virtue  of  which  the  Binghamton  bridge  was  built,  was  a 
valid  act,  and  rendered  a  final  decree  dismissing  the  bill.  Everything, 
therefore,  concurs  to  bring  into  exercise  the  appellate  power  of  this 
court  over  cases  decided  in  a  State  court,  and  to  support  the  writ  of 
error,  which  seeks  to  re-examine  and  correct  the  final  judgment  of  the 
Court  of  Appeals  in  New  York. 

The  questions  presented  by  this  record  are  of  importance,  and  have 
received  deliberate  consideration. 

It  is  said  that  the  revising  power  of  this  court  over  State  adjudica- 
tions is  viewed  with  jealousy.  If  so,  we  say,  in  the  words  of  Chief 
Justice  Marshall,  "  that  the  course  of  the  judicial  department  is  marked 
out  by  law.  As  this  court  has  never  grasped  at  ungranted  jurisdiction, 
so  it  never  will,  we  trust,  shrink  from  that  which  is  conferred  upon  it." 
The  constitutional  right  of  one  legislature  to  grant  corporate  privileges 
and  franchises,  so  as  to  bind  and  conclude  a  succeeding  one,  has  been 
denied.  We  have  supposed,  if  anything  was  settled  by  an  unbroken 
course  of  decisions  in  the  Federal  and.  State  courts,  it  was,  that  an  &ct_ 
\f  of  incorporation  was  a  contract  between  the  State  and  the  stockholders. 
All  courts  at  this  day  are  estopped  from  questioning  the  doctrine.  The 
security  of  property  rests  upon  it,  and  every  successful  enterprise  is 
undertaken,  in  the  unshaken  belief  that  it  will  never  be  forsaken. 

A  departure  from  it  now  would  involve  dangers  to  society  that  can- 
not be  foreseen,  would  shock  the  sense  of  justice  of  the  county,  un- 
hinge its  business  interests,  and  weaken,  if  not  destroy,  that  respect 
which  has  always  been  felt  for  the  judicial  department  of  the  Govern- 
ment. An  attempt  even  to  reaffirm  it,  could  only  tend  to  lessen  its 
force  and  obligation.  It  received  its  ablest  exposition  in  the  case  ot 
Dartmouth  College  v.  Woodward,1  which  case  bas  ever  since  been 
considered  a  landmark  by  the  profession,  and  no  court  has  since  dis- 
regarded the  doctrine,  that  the  charters  of  private  corporations  are 
contracts,  protected  from  invasion  by  the  Constitution  of  the  United 
States.  And  it  has  since  so  often  received  the  solemn  sanction  of  this 
court,  that  it  would  unnecessarily  lengthen  this  opinion  to  refer  to  the 
cases,  or  even  enumerate  them. 

The  principle  is  supported  by  reason  as  well  as  authority.  It  was 
well  remarked  by  the  Chief  Justice,  in  the  Dartmouth  College  case, 
"  that  the  objects  for  which  a  corporation  is  created  are  universally 
such  as  the  Government  wishes  to  promote.  They  are  deemed  bene- 
ficial to  the  country,  and  this  benefit  constitateaJihe  j&nsidejaJLJoji,  and 
in  most  cases  the  sole  consideration  for  the  grant."  The  purposes  to 
be  attained  are  generally  beyond  the  ability  of  individual  enterprise, 
and  can  only  be  accomplished  through  the  aid  of  associated  wealth. 
This  will  not  be  risked  unless  privileges  are  given  and  securities  fur- 
nished in  an  act  of  incorporation.  The  wants  of  the  public  are  often 
so  imperative,  that  a  duty  is  imposed  on  Government  to  provide  for 

1  4  Wheaton,  418. 


THE   BIXGHAMTON   BRIDGE.  173 

them  ;  and  as  experience  has  proved  that  a  State  should  not  directly 
attempt  to  do  this,  it  is  necessaiT  to  confer  on  others  the  faculty  of 
doing  what  the  sovereign  power  is  unwilling  to  undertake.  The  legis- 
lature, therefore,  says  to  public-spirited  citizens  :  "  If  3'ou  will  embark, 
with  your  time,  money,  and  skill,  in  an  enterprise  which  will  accommo- 
date the  public  necessities,  we  will  grant  to  you,  for  a  limited  period, 
or  in  perpetuity,  privileges  that  will  justify  the  expenditure  of  your 
monej',  and  the  empkn'inent  of  your  time  and  skill."  Such  a  grant  is 
a  contract,  with  mutual  considerations,  and  justice  and  good  policy  alike 
require  that  the  protection  of  the  law  should  be  assured  to  it. 

It  is  argued,  as  a  reason  wh}'  courts  should  not  be  rigid  in  enforc- 
ing the  contracts  made  by  States,  that  legislative  bodies  are  often 
overreached  by  designing  men,  and  dispose  of  franchises  with  great 
recklessness. 

If  the  knowledge  that  a  ™n.trn-fit  m*"^  hy  a  State  with  individuals  is 
equally  protected  from  invasion  as  a  contract  made  between  natural 
.  does  not  awaken  watchfulness  and  care  on  the  part  of  law- 
it  is  difficult  to  perceive  what  would.  The  corrective  to  im- 
provident legislation  is  not  in  the  courts,  but  is  to  be  found  elsewhere. 

A  great  deal  of  the  argument  at  the  bar  was  devoted  to  the  consider- 
ation of  the  proper  rule  of  construction  to  be  adopted  in  the  interpreta- 
tion of  legislative  contracts.  In  this  there  is  no  difficulty.  All  contracts 
are  to  be  construed  to  accomplish  the  intention  of  the  parties ;  and  in 
determining  their  different  provisions,  a  liberal  and  fair  construction 
will  be  given  to  the  words,  either  singly  or  in  connection  with  jthfi. 
subject-matter.  It  is  not  the  duty  of  a  court,  by  legal  subtle  t}',  to 
over  throw' a  contract,  but  rather  to  uphold  it  and  give  it  effect ;  and  no 
strained  or  artificial  rule  of  construction  is  to  be  applied  to  an}'  part  of 
it.  If  there  is  no  ambiguity,  and  the  meaning  of  the  parties  can  be 
clearly  ascertained,  effect  is  to  be  given  to  the  instrument  used,  whether 
it  is  a  legislative  grant  or  not.  In  the  case  of  the  Charles  River 
bridge,1  the  rules  of  construction  known  to  the  English  common  law 
were  adopted  and  applied  in  the  interpretation  of  legislative  grants,  and 
the  principle  was  recognized,  that  charters  are  to  be  construed  most 
favorably  to  the  State,  and  that  in  grants  by  the  public  nothing  passes 
by  implication.  This  court  has  repeatedly  since  reasserted  the  same 
doctrine ;  and  the  decisions  in  the  several  States  are  nearly  all  the 
same  way.  The  principle  is  this  :  that  all  rights  which  are  asserted 
against  the  State  must  he  clearly  defined,  and  not  raised  by  inference 
orpresumptioii ;  and  if  the  charter  is  silent  about  a  power,  it  does  not 
exist^.  If,  on  a  fair  reading  of  the  instrument,  reasonable  doubts  arise 
as  to  the  proper  interpretation  to  be  given  to  it,  those  doubts  are  to  be 
solved  in  favor  of  the  State  ;  and  where  it  is  susceptible  of  two  mean- 
ings, the  one  restricting  and  the  other  extending  the  powers  of  the 
corporation,  that  construction  is  to  be  adopted  which  works  the  least 

1  11  Peters,  544. 


174  THE   BINGHAMTON   BRIDGE. 

harm  to  the  State.  But  if  there  is  no  ambiguity  in  the  charter,  and 
the  powers  conferred  are  plainly  marked,  and  their  limits  can  be  readily 
ascertained,  then  it  is  the  dut}*  of  the  court  to  sustain  and  uphold  it, 
and  to  carry  out  the  true  meaning  and  intention  of  the  parties  to  it. 
An}-  other  rule  of  construction  would  defeat  all  legislative  grants,  and 
overthrow  all  other  contracts.  What,  then,  are  the  rights  of  the  parties 
to  this  controvers}-  ? 

[After  considering  the  various  N.  Y.  Acts  in  reference  to  Bridge 
Companies,  and  adopting  substantially  the  construction  contended  for 
by  plaintiffs,  the  opinion  proceeds  as  -follows  :] 

The  legislature,  therefore,  contracted  with  this  company,  if  they 
would  build  and  maintain  a  safe  and  suitable  bridge  across  the  Chen- 
ango  River  at  Chenango  Point,  for  the  accommodation  of  the  public, 
the}-  should  have,  in  consideration  for  it,  a  perpetual  charter,  the  right 
to  take  certain  specified  tolls,  and  that  it  should  not  be  lawful  for  any 

r&on-  -Qc-ppjw^najgjjycfc  an^'  bridge,  or  establish  any  ferry,  within  % 
istance  of  two  miles^jjn.Jiie  Chenango  River,  either  above  or  below 
their  bridge. 

Has  the  legislature  of  1855  broken  the  contract,  which  the  legislatures 
of  1805  and  1808  made  with  the  plaintiffs? 

The  foregoing  discussion  affords  an  eas}7  answer  to  this  question. 
The  legislature  has  the  power  to  license  ferries  and  bridges,  and  so  to 
regulate  them,  that  no  rival  ferries  or  bridges  can  be  established  within 
certain  fixed  distances.  No  individual  without  a  license  can  build  a 
bridge  or  establish  a  ferry  for  general  travel,  for  "  it  is  a  well-settled 
principle  of  common  law  that  no  man  may  set  up  a  ferry  for  all  passen- 
gers, without  prescription  time  out  of  mind,  or  a  charter  from  the  king. 
He  may  make  a  ferry  for  his  own  use,  or  the  use  of  his  famih*,  but  not 
for  the  common  use  of  all  the  king's  subjects  passing  that  way,  because 
it  doth  in  consequence  tend  to  a  common  charge,  and  is  become  a  thing 
of  public  interest  and  use  ;  and  every  ferry  ought  to  be  under  a  public 
regulation."  1  As  there  was  no  necessity  of  laying  a  restraint  on  un- 
authorized persons,  it  is  clear  that  such  a  restraint  was  not  within  the 
meaning  of  the  legislature.  The  restraint  was  on  the  legislature  itself. 
The  plain  reading  of  the  provision,  "  that  it  shall  not  be  lawful  for  any 
person  or  persons  to  erect  a  bridge  within  a  distance  of  two  miles,"  is, 
that  the  legislature  will  not  make  it  lawful  by  licensing  any  person,  or 
association  of  persons,  to  do  it.  And  the  obligation  includes  a  free 
bridge  as  well  as  a  toll  bridge,  for  the  securit}*  would  be  worthless  to 
the  corporation  if  the  right  by  implication  was  reserved,  to  authorize 
the  erection  of  a  bridge  which  should  be  free  to  the  public.  The  Bing- 
KriHnrn  Pnmpnny  wna  rtimvtprpd  f,o  construct,  n.  hridcrp  for  gpn-- 


praj  rnnrl  irftvql,  bkp  *hft  rihpn^ntrn  bridge,  and-jiear  to  it,  and  wi  t  hi  n_ 
the  prohibited  distance.     'This  was  a  plain  violation  of  the 


1  Hargrave's  Law  Tracts,  ch.  ii.  16  ;  The  Enfteld  Toll  Bridge  Co.  v.  The  Hartford 
and  New  Haven  Railroad  Co.,  17  Connecticut,  63  ;  Hooker  v.  Cummings,  20  Johnson, 
100  ;  Bowman  v.  Wathan,  2  McLean,  383. 


PARROTT  V.   CITY   OF  LAWRENCE.  175 

which  the  legislature  made  with  the  Chenango  Bridge  Company,  and  as 
such  a  contract  is  within  the  protection  of  the  Constitution  of  the 
United  States,  it  follows  that  the  charter  of  the  Binghamton  Bridge 
Company  is  null  and  vouL 

DECREE  of  the  Court  of  Appeals  of  New  York  reversed,  and  a  man- 
date ordered  to  issue,  with  directions  to  enter  a  judgment  for  the  plain- 
tiff in  error,  the  Chenango  Bridge  Company,  in  conformity  with  this 
opinion. 

[CHASE,  C.  J.,  delivered  a  dissenting  opinion.] 

CHASE,  C.  J.,  FIELD,  J.,  and  GRIER,  J.,  dissented. 


PARROTT  v.   CITY  OF   LAWRENCE  ET  ALS. 

1872.     2  Dillon  U.  S.  Circuit  Court  Reports,  332.1 

MOTION  to  dissolve  temporary  injunction  restraining  the  defendants, 
the  Messrs.  Wilson,  from  operating  the  ferry  hereinafter  described. 
Plaintiff  is  a  citizen  of  Ohio,  and  a  stockholder  in  the  Lawrence  Bridge 
Co.  In  his  bill  in  equity,  he  alleges  that  the  maintenance  of  the  ferry 
infringes  upon  the  rights  of  the  Bridge  Co. ;  and,  to  show  his  right  to 
maintain  the  bill,  alleges  that  the  Bridge  Co.  and  its  officers  have 
refused  to_proceed  in  the  State  courts  to  obtain  redress. 

Feb.  15,  1857,  the  Legislative  Assembly  of  the  Territory  of  Kansas 
incorporated  the  Lawrence  Bridge  Co. ;  granting  the  exclusive  right 
and  privilege  of  building  and  maintaining  a  bridge  across  the  Kansas 
River,  at  the  city  of  Lawrence  for  a  period  of  twenty-one  years ;  with 
power  to  establish  and  collect  tolls. 

Prior  to  said  incorporation  of  the  Bridge  Co.  the  Legislative  Assem- 
bly had,  in  1855,  granted  to  one  Baldwin  the  exclusive  right  to  estab- 
lish a  public  ferry  within  two  miles  of  Lawrence,  for  a  term  of  fifteen 
years.  The  answer  of  some  of  the  defendants  alleges  that  Baldwin 
kept  a  ferry  in  the  immediate  vicinity  of  the  bridge  for  some  time  after 
the  erection  of  the  bridge ;  when,  for  reasons  unknown,  he  ceased  to 
operate  the  ferry. 

By  the  laws  of  Kansas,  the  count}'  commissioners  have  the  power  to 
grant  ferry  licenses.  In  January,  1871,  the  commissioners  licensed 
one  Darling  to  keep  a  fern-,  at  Lawrence,  for  one  year.  The  ferry 
was  operated  at  first  by  Darling,  and  afterwards  by  the  Wilsons,  under 
an  arrangement  with  the  city  of  Lawrence,  the  cit}*  having  purchased 
the  ferry-boat  of  Darling.  January  6.  1872.  the  commissioners  granted 
totb(Mtefendant,_Wilsnn,  tJie__rio:bt  to  keep  and  run  aferry  on  the  Kan- 
sas River,  at  the  city  of  Lawrence,  for  one_year. 

1  Statement  abridged.  —  ED. 


176  PAEKOTT   V.   CITY   OF  LAWRENCE. 

According  to  the  bill,  answer,  and  affidavits,  it  appears  that  the 
ferry-boat,  or,  as  the  bill  styles  it,  the  floating  bridge,  is  opei'ated  in 
this  way :  Two  ropes,  or  cables,  are  thrown  across  the  river,  fastened 
on  each  side,  one  of  which  is  an  endless  chain.  A  rope  is  fastened  to 
the  upper  side  of  the  boat,  or  "  floating  bridge,"  and  this  rope  glides 
upon  the  upper  cable  b}"  means  of  a  pulley  attached  to  the  other  end 
of  the  rope,  said  pulley  passing  from  side  to  side  of  the  river  with  the 
boat,  the  motive  power  moving  the  boat  back  and  forth  across  the 
stream  being  a  stationary  steam  engine  located  on  the  north  bank  of 
the  river.  The  boat  itself  is  an  ordinary  flat-bottomed  boat. 

Thacher  &  Banks,  and  N.  T.  Stephens,  for  the  complainant. 

Wilson  /Shannon,  for  the  Messrs.  Wilson  and  the  city  of  Lawrence. 

DILLON,  Circuit  Judge.  The  grant  to  the  bridge  companj-  by  its 
charter  is  "  the  exclusive  right  and  privilege  of  building  and  maintain- 
ing a  bridge  across  the  Kansas  river  at  the  cit}'  of  Lawrence,"  and  '"to 
establish  and  collect  tolls  for  crossing  said  bridge"  If  this  right  has 
not  been  invaded,  the  complainant  is  not  entitled  to  an  injunction 
against  the  running  of  the  ferry.  I  say  the/erry,  for,  in  1x13"  judgment, 
it  is  clear  that  the  means  used  to  cross  the  river  b}'  the  defendant,  Wil- 
son,—  viz.  a  flat-bottomed  boat,  connected  with  cables  spanning  the 
stream,  and  moved  or  propelled  back  and  forth  across  it  by  power  sup- 
plied by  a  stationary  engine  on  the  bank  —  is  a  feny,  as  distinguished 
from  a  bridge,  both  under  the  legislation  of  the  State  and  according  to 
the  usual  meaning  of  the  word. 

The  passage  over  streams  is  generall}'  effected  in  one  of  two  ways, 
viz. :  by  bridges,  which,  as  commonly  constructed  for  the  use  of  trav- 
ellers and  teams,  are  immovable  structures  or  extensions  of  the  high- 
ways over  and  accross  the  water ;  and  by  boats,  which  are  movable 
and  propelled  by  steam-power,  horse-power,  the  action  of  the  current, 
or  similar  agencies.  When  the  passage  is  by  the  latter  mode  it  is 
called  ferrying,  which  implies  a  boat  that  moves  back  and  forth  across 
the  stream,  from  bank  to  bank.  The  legislation  of  Kansas  everywhere 
recognizes  this  distinction  between  bridges  and  ferries.  In  the  Stat- 
utes of  1855  there  are  provisions  for  building  bridges  (chap.  18),  and 
also  for  regulating  ferries  (chap.  71).  At  the  first  session  of  the 
legislature,  in  1855,  there  were  a  great  many  special  acts,  some  author- 
izing certain  persons  to  build  toll-bridges,  and  others  to  establish  and 
maintain  ferries.  Among  these  numerous  acts  was  one  giving  to  John 
Baldwin  the  exclusive  right  to  keep  a  public  ferry  across  the  Kansas 
river  at  the  town  of  Lawrence  for  the  period  of  fifteen  j'ears.  Two 
years  afterwards  the  legislature  incorporated  the  Lawrence  Bridge 
Company,  giving  it  the  exclusive  right  to  build  and  maintain  a  bridge 
across  the  river  at  the  same  place.  Did  this  invade  the  franchise  which 
had  been  granted  to  Baldwin?  Clearly  not,  for  the  two  grants  are 
different  i  the  one-gas^  tojteep  a  ferr^andjcoliecVgtl8~or  ferriage  for 
Crossing  the  stream  by  this  mode  — jheother  was  to  erect  ancTmaTnUiin 
a  bridge,  &c.,  "  to  collect  tolls  for  crossing  the  same."  So  that  during 


PAKEOTT   V.   CITY   OF   LAWRENCE.  177 

the  period  for  which  Baldwin's  ferry  charter  was  to  run,  there  were  two 
modes  of  crossing  the  river  at  Lawrence  express!}'  authorized,  —  the 
one  by  means  of  Baldwin's  ferry,  the  other  by  means  of  the  bridge  of 
the  Lawrence  Bridge  Company. 

The  contract  of  the  legislature  with  the  bridge  company  must  be 
protected  from  subsequent  invasion.  But  what  was  that  contract?  It  _s 
was  simply  an  exclusive  right  to  build  a  bridge  and  to  "  collect  tolls 
Ibr  crossing  tue  samfe." Tt  is  argued  that  the  contract  with  the  bridge 
company  was  tnat  tire  travel  of  a  certain  district,  to-wit :  those  passing 
the  river  at  Lawrence,  should  pass  over  this  bridge  and  pa}7  tolls  there- 
for. But  it  is  clear  that  such  was  not  the  contract:  1st,  jsecause  it  is 
not  so  expressed,  or^ fairly  to  be  impliedjrom  the  language  used^^and, 
2d,  because  the  existence  of  the  Baldwin  ferry  charter,  which_must  be 
presumed  to  have  been  in  the  mind  of  the  legislature  jvhejLJiLjjassed 
the  brtdg8""charter,  and  which,  b}'  its  terms,  would  continue  in  force 
many  y&uSafter  the  period  fixed  for  thie^  completion  of  the  bridge, 
sfibwsTEaTthe  legislature  did  not  intend  to  make  a  contract  with  the 
brjctge  company  to  the_affaclLthat  all  persons  and  property  crossing  at 
Lawrence  should  pass  over  the  bridge. 

When  wo  consider  tluiF legislative  grants  creating  monopolies,  while 
they  are  not  to  be  cut  down  by  hostile  or  strained  constructions,  are 
nevertheless  not  to  be  enlarged  beyond  the  fair  meaning  of  the  lan- 
guage used  (Binghamton  Bridge  Case,  3  Wall.  74),  this  conclusion 
seems,  to  my  mind,  so  clear  as  not  to  admit  of  fair  doubt. 

It  has  been  settled  by  adjudication  that  the  exclusive  right  to  a  toll 
bridge  is  not  infringed  by  the  erection  of  an  ordinarj-  railroad  bridge 
within  the  limits  over  which  the  exclusive  right  extended  (Mohawk 
Bridge  Company  v.  Railroad  Company,  6  Paige,  564  ;  Bridge  Pro- 
prietors v.  Hoboken  Co.  1  Wall.  116,  150,  and  cases  cited)  ;  and  the 
reasoning  upon  which  this  conclusion  rests  shows  that  where  the  charter 
of  the  bridge  company  is  silent  upon  the  subject,  its  exclusive  right 
would  not  be  invaded  by  the  establishment,  under  legislative  authority, 
of  a  public  ferry,  although  this  would  have  the  incidental  effect  to 
injure  the  value  of  the  franchise  of  the  bridge  company.  That  this  is 
the  opinion  of  the  presiding  justice  of  this  court  is  plain  from  an 
expression  to  that  effect,  by  wa}r  of  argument,  in  his  opinion  in  the 
Hoboken  Bridge  Case  (1  Wall.  116, 149).  In  that  case  the  legislature 
of  New  Jersey,  in  1790,  authorized  the  making  of  a  contract  with  cer- 
tain persons  for  the  building  of  a  bridge  over  the  Hackensack  river, 
and  by  the  same  statute  enacted  that  it  should  not  be  lawful  for  any 
person  to  erect  '-  any  other  bridge  over  or  across  the  said  river  for 
ninety-nine  years  ;  "  and  it  was  held  that  the  railroad  bridge  subse- 
quently authorized,  which  was  so  constructed  as  that  persons  or  prop- 
erty could  not  pass  over  it  except  in  railway  cars,  did  not  impair  the 
legal  rights  of  the  bridge  proprietors.  Mr.  Justice  MILLER,  in  dis- 
cussing the  question  as  to  what  was  the  meaning  of  the  Act  of  1790 
and  the  contract  with  the  persons  who  built  the  bridge,  says  :  "  There 

12 


178  PARROTT   V.   CITY   OF   LAWRENCE. 

is  no  doubt  that  it  was  the  intention  of  those  who  framed  those  two 
documents  to  confer  on  the  persons  now  represented  by  the  plaintiffs 
some  exclusive  privileges  for  ninety-nine  years.  If  we  can  arrive  at 
a  clear  and  precise  idea  what  that  privilege  is,  we  shall  perhaps  be 
enabled  to  decide  whether  the  erection  proposed  by  the  defendants  will 
infringe  it.  In  the  first  place,  it  is  not  an  exclusive  right  to  transport 
passengers  and  property  over  the  Hackensack  and  Passaic  rivers,  for 
there  is  no  prohibition  of  ferries,  nor  is  it  pretended  that  they  would 
violate  the  contract."  (1  Wall.  149.) 

In  conclusion  I  may  remark,  that  I  have  considered  the  very  ingen- 
ious argument  made  by  the  complainant's  counsel  to  show  that  the  mode 
adopted  by  the  defendants  for  transporting  persons  and  propert}*  across 
the  river  is  not  a  feny,  but  a  flying  bridge,  or  a  floating  bridge,  and 
hence  it  is  a  violation  of  the  franchise  of  the  bridge  company.  But 
the  single  boat  which  is  made  to  cross  the  river  by  steam-power,  is  not, 

I  in  my  judgment,  a  bridge  of  any  kind,  and  certainty  not  a  bridge 
within  the  meaning  of  legislation  of  the  State  of  Kansas  on  the  sub- 
ject of  bridges  and  ferries.  It  is  argued,  and  perhaps  with  correct- 
ness, that  the  cit}"  of  Lawrence  transcended  her  powers  in  purchasing 
boats  and  in  assisting  Wilson  to  maintain  his  ferry  under  his  license 
from  the  county  authorities.  But  if  this  be  granted,  it  falls  far  short 
of  showing  that  the  complainant  is  entitled,  in  consequence,  to  an 
injunction  to  prevent  Wilson  from  running  his  ferry  under  his  license. 
DEL  AHA  Y,  J.,  concurs.  Injunction  dissolved. 


STOCKTON  SAVINGS  BANK  V.  STAPLES.          179 


CHAPTER  Y. 
POWERS  USUALLY  IMPLIED.1 


SECTION   I. 

Power  to  Acquire  Property  by  Purchase. 
STOCKTON   SAVINGS   BANK  v.  STAPLES  ET  ux. 

1893.     98  California,  189.2 

VANCLIEF,  C.  Action  to  quiet  title  to  an  undivided  halFof  a  quarter 
section  of  land  situate  in  the  count}'  of  San  Joaquin.  The  judgment 
was  in  favor  of  the  plaintiff,  and  defendants  have  appealed  therefrom, 
and  from  an  order  denying  their  motion  for  a  new  trial.  Robert  Coffee, 
who  is  admitted  to  have  been  the  source  of  title,  conveyed  an  undivided 
half  of  the  quarter  section  to  the  defendant  Mary  P.  Staples  in  March, 
1870  ;  and  it  is  not  disputed  that  she  remained  a  tenant  in  common 
with  him  until  the  2d  day  of  June,  1875,  at  which  time  it  is  claimed  by 
plaintiff  that  he  ousted  her,  and  thence  maintained  a  continuous  adverse 
possession  of  her  interest  until  September  11,  1888,  when  he  conveyed 
the  whole  quarter  section  to  Alice  L.  Hudson,  who  continued  the  ad- 
verse possession  until  September  20,  1890,  when  she  conveyed  the 
entire  quarter  section  to  the  plaintiff.  This  action  was  commenced 
October  15,  1890.  The  court  found  all  the  essential  elements  of  a  con- 
tinuous adverse  possession  by  Robert  Coffee,  Alice  L.  Hudson,  and 
plaintiff,  except  notice  to  Mar}*  P.  Staples  of  its  hostile  character,  from 
June  2,  1875,  until  the  commencement  of  this  action  ;  and  further 
found,  substantially,  that  Mary  P.  Staples  had  actual  notice  of  the 
adverse  and  hostile  character  of  such  possession  from  1884  until 
the  commencement  of  this  action.  Thus  it  appears  that  the  title 
upon  which  plaintiff  recovered  was  found  to  have  been  acquired  by 
prescription. 

1  The  subject  of  Corporate  Powers  is  also  discussed  in  various  cases  which  are 
given  under  special  topics  treated  of  in  subsequent  chapters.  —  ED. 

2  Only  part  of  the  opinion  is  given.  —  ED. 


180  STOCKTON   SAVINGS   BAXK   V.   STAPLES. 

Appellants  contend  that  the  court  erred  in  overruling  their  objections 
to  the  introduction  in  evidence  of  the  deed  from  Mrs.  Hudson  to  plain- 
tiff. The  ground  of  the  objection  was  that  the  plaintiff  "  was  not  shown  . 
to  have  the  power  to  purchase,  hold,  or  receive  said  land,  nor  that  said 
laud  was  conveyed  to  it  for  any  of  the  purposes  of  the  corporation." 
There  was  no  evidence  to  show  for  what  purpose  the  corporation  had 
been  organized,  or  what  business  it  was  conducting.  The  court  found 
accor-diag  to  the  -allegation  of  the  complaint,  not  denied  in  the  answer,. 
that  a£ft!l  jfo  ^mgs  stated  the~plajntlff  "  was  a  corporation  dnly  organ- 
ized and  incorporated  under  and  by  virtue  o£  the  laws  of  the  state  of 
California,  a^d  frflvin<y  its^nffuy  find  principal  place  of  business  in  tfift 
city  of  Stockton,  cmintvjpCJS^in  Joaquin,  state  of  California."  Under 
thesg_dr(Mimstanfps  T  ihink  i{.  must  be  presunaed~^as~against  the  defend- 
ants,  at  lpnst.)jtjia.t.  the  corpor.it.inn  l^d  powpr  to  purchase  andjiojji  the_ 
land.  Mining  Co.  v.  Clarkin,  14  Cal.  ;">4,">  ;  Evans  v.  Bailey,  66  Cal. 
T12  ;  Hagar  v.  Board,  47  Cal.  222  ;  People  v.  La  Rue,  67  Cal.  526  ; 
Spel.  Priv.  Corp.  §§  203,  206.  It  does  not  appear  under  what  statute, 
or  for  what  purpose,  the  plaintiff  was  incorporated,  nor  what  business  it 
was  engaged  in,  nor  for  what  purpose  the  propert}*  was  purchased  or 
used.  In  answer  to  a  similar  objection  in  People  v.  La  Rue,  supra,  it 
was  said:  '•  If  there  was  anything  in  its  charter,  or  the  business  "in 
which  it  was  engaged,  or  in  the  law  under  which  it  was  organized,  in 
any  manner  abridging  its  right  to  hold  land,  it  does  not  appear  of 
record  ;  hence  we  deem  the  objection  untenable." 1 

•   BELCHER  C.  and  TEMPLE  C.  concurred. 

For  the  reasons  given  in  the  foregoing  opinion  the  judgment  and 
order  appealed  from  are  affirmed. 

GAROUTTE  J.,  PATERSON  J.,  HARRISON  J. 

Hearing  in  Bank  denied. 

1  In  People  v.  La  Rue,  the  passage  above  quoted  is  preceded  by  these  sentences. 

It  is  said  by  Angell  &  Ames  on  Corporations,  at  section  110,  that  "both  by  the 
laws  of  England  and  the  United  States,  there  are  several  powers  and  capacities  which 
•taeitlvjtnd  without  any  express  provision  are  considered  inseparable  from  every  cor- 
poration,,"  Kyd  enumerates  five  of  these  as  necessarily  and  inseparably  belonging  to 
every  corporation. 

In  (numerating  them,  the  third  in  number  ja_the  right  or  power  "to  purchase  lands 
and  hold  them  for  the  benefit  of  themselves  and  their  successors^ 

The  presumption  is  that  the  corporation  in  question  had  the  right  to  purchase  and 
hold  the  lauds  by  it  represented. 


NICOLL   V.   NEW  YORK  AND   ERIE   RAILROAD   CO.  181 

NICOLL  v.    NEW  YORK   &   ERIE   R.    R.   CO. 

1854.  12  New  York,  121.1 

EJECTMENT  commenced  in  the  supreme  court  in  February,  1847,  * 
and  tried  at  the  Orange  county  circuit,  held  by  Mr.  Justice  P^d wards 
in  October,  1848.  The  jury  found  a  special  verdict,  from  which  it 
appeared  that  on  the  first  day  of  July,  1836,  Nicholas  A.  Dederer, 
being  the  j)wner_in  fee  simple  of  a  farm  situateln  .Blooming  GrovfL 
OTange  Count} ,  executed  to  the_Hudson  and  Delaware  Railroad  Com=. 
pany  a  deed,  dated  that  daypwhereb}*,  in  consideration  of  the  benefits 
liTfd  advantages  to  him  of  the  railroad  proposed  to  be  made  by  the 
company,  and  of  one  dollar  to  him  paid  by  the  company,  he  granted  to 
such  company  the  privilege  of  surveying  and  laying  out,  by  its  agents 
and  engineers,  through  his  farm  or  tract  of  land,  the  route  and  site  of 
its  road ;  and  also  granted,  bargained,  sold,  and  conveyed  unto  the 
company  and  its  successors,  so  much  of  the  farm  as  might  be  selected 
and  laid  out  by  the  com  pan  j*  for  the  site  of  its  railroad,  six  rods  in 
width  across  the  farm ;  provided  always,  and  such  grant  was  made, 
upon  the  express  condition,  that  the  company  should  ^construct  its. 
failroad iwitSm^  the  time  prescribed  by  the  act  incorporating  the  same.  V 
That  subsequently,  and  before  the  27th  of  October,  1836,  the  company 
selected  and  laid  out,  for  the  site  of  its  railroad  through  the  farm,  a 
strip  of  land  six  rods  wide  extending  through  the  farm.  That  on  the 
first  of  ApriljJ.844,  the  farm  formerly  owned  by  Dederer,  by  virtue  of 
sundry  mesne  conveyances,  became  the  property_of  the  plaintiff  in  fee 
simpTe7^iibjectonly  to  such  right  as  the  Hudsonand  Delaware  Railroad 
Cbmpany~tlien  had  to  anvportion  thereof  sufficient  forjjie  track  of  its 
road.  That  this  conTplmy^oir the  27th  of  October,  1836,  commenced 
ttie~construction  of  its  railroad,  but  never  completed  or  put  in  operation 
a  double  or  single  track,  or  any  part  thereof.  That  in  pursuance  of 
an  act  of  the  legislature,  entitled  an  act  authorizing  the  New  York  and  " 
Erie  Railroad  Company  to  construct  a  branch  road,  terminating  at  the 
village  of  Newburgh,  passed  April  8,  1845.  the  Hudson  and  Delaware 
Railroad  Company  were  authorized  to,  and  on  the  14th  of  September, 
1846,  did  execute  to  the  defendant,  the  New  York  and  Erie  Railroad 
Company,  a  deed,  and  thereby  for  a  valuable  consideration  granted, 
bargained,  sold,  and  conveyed  to  the  defendant  and  its  successors, 
the  maps,  charts,  drafts,  surveys,  and  other  personal  property  of  the 
Hudson  and  Delaware  Company,  and  all  its  rights,  privileges,  immuni- 
ties and  improvements,  acquired  under  and  by  virtue  of  the  original  act 
of  incorporation,  or  of  any  act  amending  it,  or  in  any  other  manner ; 
and  also  all  the  grants,  lands,  and  real  estate  acquired  by  or  ceded  or 
conveyed  to  the  Hudson  and  Delaware  Company,  and  all  its  right,  title, 
and  interest  to  the  same,  and  particularly  the  right  of  way,  granted  by 

1  Arguments  omitted.  —  ED. 


182  NICOLL  V.   NEW   YORK   AND   ERIE   RAILROAD   CO. 

Dederer  to  the  company  and  its  successors,  by  the  deed  from  him  above 
mentioned.  That  when  this  suit  was  commenced,  on  the  25th  of  Feb- 
ruary, 1847,  the  defendant  had  not  completed  or  put  in  operation  its 
branch  road  terminating  at  Newburgh,  or  any  part  of  it,  nor  had  it 
,  done  so  when  the  cause  was  tried.  That  on  the  2d  of  December,  1846, 
the  defendant  entered  upon  the  strip  of  land  six  rods  wide,  mentioned 
in  the  deed  from  Dederer  and  laid  out  by  the  Hudson  and  Delaware 
Company  through  his  farm  as  the  site  of  its  road,  and  ejected  the 
plaintiff  therefrom,  and  that  the  defendant  was  still  in  the  possession 
thereof.  The  suit  was  brought  to  recover  possession  of  this  strip  of 
land  from  the  defendant. 

The  justice  before  whom  this  cause  was  tried  ordered  judgment  upon 
the  special  verdict  in  favor  of  the  plaintiff.  The  defendant  appealed, 
and  the  supreme  court,  sitting  in  general  term  in  the  3d  district,  reversed 
the  judgment  and  gave  judgment  in  favor  of  the  defendant.  (See  12 
Barb.,  460.)  The  plaintiff  appealed  to  this  court. 

E.  L.  Fancher,  for  appellant. 

T.  M.  Kissock,  for  respondent. 

PARKER,  J.  The  grant  from  Dederer  to  the  Hudson  and  Delaware 
Railroad  Company,  bearing  date  the  first  day  of  July,  1836,  was  made 
to  that  company  "  and  their  successors."  Under  that  grant,  there  can 
be  no  doubt  the  Hudson  and  Delaware  Railroad  Company  took  a  fee. 
The  words  of  perpetuit}'  used  would  have  been  sufficient  to  describe  a 
fee,  even  under  the  most  strict  requirements  of  the  common  law. 

The  ^company  had  ample  power  to  purchase  lands.  It  was  a  power 
incidenl_a.t  common  law  t^  Ql1  'wpm-nt.irms,  unless  they  wejp__gr)ppm11y 
ivstrained  by  tiieir  .charters.,  or  by  _  statute.  (2  Kent,  281  ;  C<>.  Lilt,, 
44  a,  300  b;  \  Kyd  on  Corp.,  76,  78,  108, 115  ;  3  Pick.  239.)  And  in 
this  case  the  power  was  express!}"  conferred  b}-  the  9th  section  of  the 
charter  (Sess.  Laws  of  1835,  p.  113);  and  b}'  the  16th  section  there 
were  given  to  it  the  general  powers  conferred  upon  corporations 
(1  R.  S.  731),  one  of  which  is  that  of  holding,  purchasing  and  con- 
veying such  real  estate  as  the  purposes  of  the  corporation  ma}*  require. 
But  if  no  words  of  perpetuity  had  been  used,  the  grantor  owning  a  fee, 
the  company  would  have  taken  a  fee ;  for  the  statute  is  now  impera- 
tive, that  every  grant  shall  pass  all  the  estate  or  interest  of  the  grantor, 
unless  the  intent  to  pass  a  less  estate  or  interest  shall  appear  b}' 
express  terms  or  be  necessaril}-  implied  in  the  terms  of  the  grant. 
(1  R.  S.,  748,  §  1.) 

But  it  is  objected  that  because,  by  the  act  of  incorporation,  there 
was  given  to  it  only  a  term  of  existence  of  fift}"  }-ears  (Laws  q/"1835, 
p.  110,  §  1),  therefore  the  grant  shall  be  deemed  to  have  conveyed  an 
estate  for  3-ears,  and  not  in  fee.  The  unsoundness  of  that  position  is 
easily  shown.  It  was  never  yet  held,  that  a  grant  of  a  fee  in  express 
terms  pQiild-be  resj^jcj£d_bv_the  fact  that  the  gran_tee  had  but  a  limited 
term  of  existence.  If  it  were  so,  a  grant  could  never  be  made  to  an 
individual  in  fee,  because,  in  his  earthly  existence,  he  is  not  immortal. 


NICOLL   V.   NEW   YORK   AND   ERIE   RAILROAD   CO.  183 

Under  such  a  rule,  a  man  could  never  buy  a  greater  interest  in  a  farm 
than  a  life  estate.  It  would  follow  that  all  estates  would  be  life  estates, 
except  those  held  by  perpetual  corporations.  The  intent  of  parties, 
fully  expressed  in  a  deed,  would  avail  nothing,  but  all  grants  would  be 
measured  by  the  mortality  of  the  grantee.  It  is  needless  to  follow  out 
the  proposition  further  to  show  its  absurdity. 

It  is  not  to  the  parties  to  a  grant,  but  to  its  terms,  that  we  look  to 
ascertain  the  character  and  extent  of  the  estate  conveyed.  Such  was 
the  rule  at  common  law,  and  is  still  by  statute.  (1  It.  $.,  748,  §  1.) 
The  change  made  by  the  statute  favors  the^grantee,  wherejjtere  are  no 
express  .term's  in  the  grant,  by  the  presuming  the  grantor  intended  to 
convey  all  his  estate. 

At  common  law,  it  was  only  where  there  were  no  express  terms, 
defining  the  estate  in  the  convej-ance,  that  the  term  of  legal  existence 
of  the  grantee  was  deemed  to  be  the  measure  of  the  interest  intended 
to  be  convej^ed.  Thus,  words  of  perpetuity,  such  as  "  heirs  or  suc- 
cessors," were  necessary  to  convey  a  fee.  A  grant  to  an  individual, 
without  such  words,  conveyed  only  a  life  estate.  For  the  same  reason 
a  grant,  without  such  words,  to  a  corporation  aggregate  (  Vtners  Ab., 
Estate,  L.  3),  or  to  a  ma3ror  or  commonalty  (ib.,  3),  convej-ed  a  fee, 
because  the  grantees  were  perpetual.  The  grantee  named  in  such  case 
having  a  perpetual  existence,  the  estate  could  not  have  been  enlarged 
by  words  of  succession. 

But  this  is  now  changed  by  our  Revised  Statutes.  Words  of  inheri- 
tance_pr  succession  are  no  longer  necessary,  and,  in  their  absence,  we 
Took,  not  to  the  term  of  existence  of  the  grantee  to  ascertain  the  estate, 
but  to  the  amount  of  interest  owned  by  the  grantor  at  the  time  he 
conveyed.  All  his  estate  is  deemed  to  have  passed  by  the  grant. 
(1  R.  S.<  748,  §  1.) 

All  this  is  applicable  only  to  cases  where  the  grant  is  silent  as  to 
the  extent  of  interest  conveyed.  Where  that  interest  is  expressly 
described,  as  in  this  case,  the  law  never,  either  before  or  since  our 
revision,  did  violence  to  the  intent  of  the  parties,  by  cutting  down  the 
estate  agreed  to  be  conveyed  to  the  measure  of  the  grantee's  term  of 
existence.  It  has  long  been  one  of  the  maxims  of  the  law,  that  "  no 
implication  shall  be  allowed  against  an  express  estate  limited  by  express 
words."  (  Viner's  Ab.,  Implication,  A.,  5  ;  1  Salk.,  236.) 

It  is  erroneous  to  say  that  an  estate  in  fee  cannot  be  full}'  enjoyed 
by  a  natural  person,  or  by  a  corporation  of  limited  duration.  It  is  an 
enjoyment  of  the  fee  to  possess  it.  and  to  have  the  full  control  of  it, 
including  the  power  of  alienation,  by  which  its  full  value  ma}-  at  once 
be  realized. 

It  is  well  settled  that  corporations,  though  limited  in  their  duration, 
may  purchascand  hold  a  fee,  and  they  may  sell  such  real  estate  when- 
ever tbeysball  find  it  no  longer  necessary  nr  nonvpnipnt  (5  Deniot 
389;  2  Preston  on  Estates,  50.)  Kent  says:  "Corporations  have  a 
fee  simple  for  the  purpose  of  alienation,  but  they  have  only  a  deter- 


184  NICOLL  V.   NEW  YORK   AND   ERIE   RAILROAD   CO. 

minable  fee,  for  the  purpose  of  enjoyment.  On  the  dissolution  of  the 
corporation,  the  reverter  is  to  the  original  grantor  or  his  heirs  ; 1  but  the 
grantor  will  be  excluded  by  the  alienation  in  fee,  and  in  that  way 
the  corporation  may  defeat  the  possibility  of  a  reverter.  (2  Kent,  282  ; 
5  Denio,  389 ;  1  Comst.  H.  509.)  Large  sums  of  money  are  accord- 
ingly expended  by  railroad  companies  in  erecting  extensive  station 
houses  and  depots,  and  by  banking  corporations  in  erecting  banking 
houses,  because,  holding  the  land  in  fee,  they  may  be  able  to  reimburse 
themselves  for  the  outlay  by  selling  the  fee  before  the  termination  of 
their  corporate  existence. 

The  Hudson  and  Delaware  Railroad  Company  then,  b}1  their  grant 
from  Dederer,  took  a  title  in  fee,  but  it  was  a  fee  upon  condition,  there 
being  in  the  grant  an  express  condition  that  the  road  should  be  con- 
structed by  the  company  within  the  time  prescribed  by  the  act  of  incor- 
poration. This  was  not  a  condition  precedent,  as  was  argued  by  the 
plaintiff's  counsel,  but  a  condition  subsequent. 

Kent  says  (4  Kent,  129) :  "Conditions  subsequent  are  not  favored 
in  the  law  and  are  construed  strictly,  because  they  tend  to  destroy 
estates."  They  can  only  be  reserved  for  the  benefitjof_the_grantor_ 

and   his   hpira^an^    nn  nthpra  r»gn    takp   a/jyantage  of  a  breach,  of  them. 

(4  Kent  Com.  122,  127;  2  Black.  Com.,  154.)  The  plaintiff  took  his 
deed  of  the  farm  on  the  first  of  April,  1844.  This  was  one  year  before 
the  expiration  of  the  time  for  constructing  the  road,  and  two  years 
before  the  Hudson  and  Delaware  Railroad  Compan}7  conveyed  to  the 
defendants.  At  that  time,  therefore,  there  had  been  no  breach  of  the 
condition ;  on  the  contrary,  the  right  of  the  company  was  expressly 
recognized  and  reserved  in  the  deed.  Certainly,  then,  Dederer,  when 
he  conveyed,  had  no  assignable  interest. 

[The  concurring  opinion  of  GARDINER,  C.  J.,  is  omitted.] 

Judgment  affirmed. 

1  This  view  is  now  rejected.  See  Bacon  v.  Robertson,  post ;  also  Gray  on  the  Rule 
against  Perpetuities,  §§  44-51 ;  and  2  Kent's  Com.  307,  note  b.  —  ED. 


WHITE   V.   HOWARD.  185 

SECTION  II. 

Power  to  Acquire  Property  by  Devise. 

WHITE  v.   HOWARD. 

1871.     38  Conn.  342.1 

BILL  IN  EQUITY  by  the  executors  of  the  will  of  William  Bostwick, 
praying  for  advice  in  the  construction  of  the  will.  The  residue,  both 
real  and  personal,  was  devised  to  trustees,  to  be  applied  for  the  benefit 
of  testator's  daughter  during  her  life.  If  the  daughter  should  die  leav- 
ing no  husband  or  issue,  a  certain  part  of  the  trust  fund  was  to  be 
divided  between  six  societies,  of  which  the  American  Tract  Society,  a 
New  York  corporation,  was  one.  The  daughter  died,  leaving  neither 
husband  nor  children.  Counsel  for  the  heirs-at-Iaw  of  the  testator 
contend  that  the  American  Tract  Society  is  incapable  of  taking  real 
estate  in  Connecticut  by  devise,  and  that  the  residuaryjclause  must 
fail  so  far  as  it  attempts  to  devise  real  estate  in  Connecticut  to  that 
corporation^ 

H.  White  and  J.  S.  Beach,  for  petitioners. 

Doolittle  and  L,  N.  Bristol,  for  heirs  of  testator. 

D.  B.  Beach,  for  heirs  of  daughter. 

J.  W.  JZdmunds,  Cook,  Campbell,  G.  N".  Titus,  T.  Westervelt, 
A.  L.  Edwards,  S.  E.  Baldwin,  for  various  Societies. 

FOSTER  J. 

It  is  asserted  that  the  American  Tract  Society  can  take  neither  real 
or  personal  property  under  this  will.  That  it  cannot  take  real,  because 
its  charter  of  incorporation,  granted  by  the  state  of  New  York,  does 
not  confer  the  power  of  taking  by  devise  ;  that  it  cannot  take  personal, 
because  the  charter  provides  that  the  net  income  of  said  society  arising 
from  real  and  personal  estate  shall  not  exceed  the  sum  of  $10,000  annu- 
ally. This  limit  it  is  Claimed  has  been  reached  and  exceeded,  and  so, 
the  capacity  of  the  society  to  tak^  pmpprtj  ia  p^]TQj]Steri  This  society 
was  incorporated  by  a  special  act  of  the  legislature  of  the  state  of  New 
York,  passed  May  26,  1841.  The  third  section  of  its  charter  provides 
that  the  corporation  shall  possess  the  general  powers,  and  be  subject 
to  the  provisions,  contained  in  title  3d  of  chapter  18  of  the  first  part  of 
the  revised  statutes,  so  far  as  the  same  are  applicable  and  have  not 
been  repealed.  The  title  and  chapter  referred  to  enumerate  the  powers 
of  corporations,  and  the  clause  which  bears  directly  upon  this  subject 
reads  thus:  "to  hold,  purchase,  and  convey  such  real  and  personal 

1  Statement  abridged.  Only  so  much  of  the  opinion  is  given  as  relates  to  one 
point.  Arguments  omitted. —  ED. 


186  WHITE   V.   HOWARD. 

estate  as  the  purposes  of  the  corporation  shall  require,  not  exceeding^ 
thVamotmt  limited  in  its  charter."  This  charter  was  amended  by  the 
legislature  of  New  York  on  the  31st  of  March,  1866,  but  as  this  was 
after  the  death  both  of  the  testator  and  of  his  daughter,  that  amend- 
ment need  not  be  particularly  considered,  as  it  cannot  materially  affect 
the  question  involved.  Now  it  is  manifest  that  this  corporation  has 
express  power  by  its  charter  to  hold,  purchase  and  convey  real  and  per- 
sonal estate,  for  specified  purposes  and  to  a  limited  amount.  There  is 
no  express  power  to  take  by  devise,  nor  is  the  power  so  to  take 
expressly  prohibited.  We  suppose  there  could  be  no  doubt  that  this 
corporation  could  take  by  devise  in  New  York,  if  the  Statute  of  Wills 
of  that  state  empowered  corporations  generally  to  take  in  that  manner. 
The  English  Statute  of  Wills,  passed  in  the  time  of  Henry  VIII, 
authorized  every  person  having  a  sole  estate  in  fee  simple  of  any 
manors  &c.,  "  to  give,  dispose,  will,  or  devise,  to  any  person  or  per- 
sons, except  to  bodies  politic  and  corporate,  by  his  kist  will  and  testa- 
ment in  writing,  or  otherwise  by  any  acts  lawfully  executed  in  "his 
lifetime,  all  his  manors  &c.,  at  his  own  will  and  pleasure,  any  law,  stat- 
ute, custom,  or  other  thing  theretofore  bad,  made,  or  used  to  the  con- 
trary notwithstanding."  Thus  corporations,  by  express  exception  in 
not  ^nnhle^Lo  take  lands  directl  b 


_ 

England,  and  the  Statute  of  Wills  of  the  state  of  New  York  makes  the 
saruejjxception.  By  that  statute  it  is  enacted,  that  all  persons,  except 
icfiots,  persons  of  unsound  mind,  married  women,  and  infants,  may 
devise  their  real  estate  by  a  last  will  and  testament  duly  executed  &c. 
"  Such  devise  ma}*  be  made  to  ever}*  person  capable  by  law  of  holding 
real  estate  ;  but  no  devise  to  a  corporation  shall  be  valid,  unless  such 
corporation  be  expressly  authorized  by  its  charter,  or  by  statute,  to 
take  by  devise."  3  N.  Y.  Rev.  Stat,  138,  (5th  ed.).  This  corpora- 
tion therefore,  prior  to  the  recent  amendment  of  its  charter,  could  not 
take  by  devise  in  New  York,1  and  such  is  the  decision  of  their  Supreme 
Court  and  Court  of  Appeals  in  this  veiy  case.  And  so  it  is  earnestly 
contended  that  it  cannot  take  by  devise  in  Connecticut.  We  yield 
readily  to  the  doctrine  laid  down  in  this  connection  in  regard  to  cor- 
porations ;  indeed  it  is  too  thoroughly  established  to  be  doubted  or 
questioned.  That  doctrine  perhaps  is  nowhere  better  stated  than  in 
the  case  of  Headv.  Providence  Ins.  (70.,  2  Cranch,  127,  by  the  then 
illustrious  head  of  the  Supreme  Court  of  the  United  States,  the  late 
Chief  Justice  MARSHALL.  "It  [a  corporation]  may  correctly  be  said 
to  be  precisely  what  the  incorporating  act  has  made  it  ;  to  derive  all  its 
powers  from  that  act,  and  to  be  capable  of  exerting  its  faculties  only 
in  the  manner  which  that  act  authorizes."  Now  this  corporation 
stands  at  the  bar  of  this  court  claiming  the  right  to  take  lands  within 

1  Corporations  "always  had  the  right  at  common  law  to  take  personal  property 
l><!  hpqnest  ;  .  .  .  and  I  entertain  no  doubt  that  they  have  that  right  under  our  stat- 
utes." WRIGHT,  J.,  in  Sherwood  v.  Am.  Bible  Society,  4  Abbott,  N.  Y.  App.  Dec.  227, 
p.  231.  —  ED. 


WHITE   V.   HOWARD.  187 

our  territory  by  devise.  It  is  clothed  with  such  powers  as  have  been_ 
conferred  by  its  charter.  ^Those,  a  portion  of  them,  as  we  have  seen, 
are  to  hold,  pure-base,  and  convey  real  estate.  It  is  not  expressly 
authorized  to  take  b}-  devise,  nor  is  it  prohibited  from  so  taking.  Can 
it  then  take  by  devise  ?  Not  in  New  York,  as  we  have  seen.  There- 
fore not  in  Connecticut,  sa^v  the  counsel  for  the  heirs  at  law,  for  being 
a  New  York  corporation,  and  by  the  law  of  that  state  devoid  of  power 
to  take  b}"  devise,  no  argument  is  needed  to  show  its  inability  to  take 
b}-  devise  in  Connecticut.  This  conclusion  is  too  hastily  drawn.  If 
the  inability  to  take  by  devise  arose  out  of  a  prohibitory  clause  in  the 
charter,  the  conclusion  would  be  legal  and  logical.  But  the  inability 
does  not  so  arise.  There  is  no  prohibition  in  the  charter  ;  the  inability 
iH^nrpatod  by  the  New  York  Stntnte  of  Wills,  expressly  excepting  cor- 
pnrationsJVom  taking  by  devise.  Now  this  corporation  brings  with  it 
from  New  York  its  charter,  but  it  does  not  bring  with  it  the  New  York 
Statute  of  Wills  and  cannot  bring  it  to  be  recognized  as  law  within 
this  jurisdiction.  There  is  an  obvious  distinction  between  an  incapa- 
j^ihy_j,Q  t.akp.  nrp.flt.p.d  by  the  statute  of  a  state.  which_is  L  local.  and_a 
prohibJtoiy  clause  in  the  charter,  which  everywhere  cleaves  to  thp  coij^ 
jnra.f|ion-  The  reasoning  is  fallacious,  not  recognizing  this  distinction. 
Tbere^  being  no  prohibiUo"  in  thP  ^\^ter,  and  the  power  to  hold  and 
conve}'  real  estate  being  p-v-pi-pssly  givpn,  we  must  look  to  our  own, 
jtatutesandjaws,  and  not  to  those  oXNpw  York,  to  dp.tprminp.  whether 
Or  not  tbjs  o.orporntinn  run  t?kp  by  dpvisp.  in 


The  state  of  New  York  has  partially  adopted  the  policy  of  England 
in  regard  to  devises  to  corporations,  though  the  English  statutes,  usu- 
ally called  the  statutes  of  mortmain,  have  not  been  reenacted  in  that 
state.  Those  statutes  began  with  Magna  Charta,  in  9  Henry  III, 
and  embrace  a  succession  of  acts  down  to  and  including  9  George  II. 
They  were  intended  to  check  the  ecclesiastics  of  the  Roman  church 
from  absorbing  in  perpetuity,  in  dead  clutch,  all  the  lands  of  the  king- 
dom, and  so  withdrawing  them  from  public  and  feudal  charges.  Shel- 
ford  on  Mortmain,  2.  By  the  statute  of  43  Eliz.,  ch.  4,  known  as  the 
Statute  of  Charitable  Uses,  lands  ma}-  be  devised  to  a  corporation  for  a 
charitable  use,  and  the  court  of  chancery  will  support  and  enforce  such 
devises.  Whether  a  court  of  equity  has  power  to  execute  and  enforce 
such  trusts,  as  charities,  independent  of  an}'  statute,  is  a  question  which 
has  been  much  discussed,  and  very  high  authorities  can  be  quoted  both 
in  favor  and  against  the  exercise  of  such  a  power.  We  think  the  latter 
and  better  opinion  to  be  in  favor  of  an  original  and  necessary  jurisdiction 
in  courts  of  equit}*  as  to  devises  in  trust  for  charitable  purposes,  when 
the  general  object  is  sufficiently  certain,  and  not  contrary  to  any  positive 
rule  of  law.  It  is  unnecessary  however  to  decide  this  question,  for  in 
this  state  we  have  no  statutes  of  mortmain  ;  no  exception  in  our  Stat- 
ute of  Wills  prohibiting  corporations  from  taking  by  devise;  aliens. 
resident  in  this  state  or  in  any  of  the  United  States,  may  purchaset 
hold,  inherit,  or  transmit  real  estate,  in  as  full  and  ample  a  manner  as 


188  WHITE   V.   HOWARD. 

native  born  citizens ;  their  wives  are  entitled  to  dower ;  their  children 
and  other  lineal  descendants  may  inherit;  and  we  have  besides  a  stat- 
ute, passed  in  our  colonial  days  in  1702,  in  effect  reenacting  the  statute 
of  43  Elizabeth,  and  containing  indeed  more  liberal  and  comprehensive 
provisions  to  sustain  devises  of  this  description  than  are  contained  in 
the  43  Elizabeth.  That  act  provides,  that  "  all  lands,  tenements,  or 
other  estates,  that  have  been  or  shall  be  given  or  granted  by  the  Gen- 
eral Assembly,  or  any  town  or  particular  person,  for  the  maintenance 
of  the  ministry  of  the  gospel,  or  of  schools  of  learning,  or  for  the  relief 
of  the  poor,  or  for  any  other  public  and  charitable  use,  shall  forever 
remain  to  the  uses  to  which  they  have  been  or  shall  be  given  or  granted, 
according  to  the  true  intent  and  meaning  of  the  grantor,  and  to  no 
other  use  whatever." 

We  therefore  entertain  no  doubt  that  the  American  Tract  Society 
can  take  by  devise  in  this  state.  As  to  the  other  objection,  that  hav: 
ing  an  income  greater  in  amount  than  is  allowed  by  its  charter  it  has 
exhausted  its  'power  to  take,  it  suffices  to  say  that  no  such  fact  isi 
found  by  the  veiy  c»mpetent~committee  whoseT  report  is  on  the  record. 


SECTION  III. 

Power  to  Alienate.     Power  to  Mortgage. 

1  KYD  ON  CORPORATIONS,  1st  ed.,  A.  D.  1793,  pp.  107,  108.  Having 
considered  the  capacit}'  of  corporations  to  take  property,  we  are  natu- 
rally led,  in  the  next  place,  to  treat  of  the  power  they  have  to  dispose 
of  it. 

All  civil  corporations,  such  as  the  corporations  of  mayor  and  com- 
monalt}',  bailiffs  and  burgesses  of  a  town,  or  the  corporate  companies 
of  trades  in  cities  and  towns,  and  all  corporations  established  by  act 
of  parliament  for  some  specific  purpose,  unless  expressly  restrained  by 
the  act  which  establishes  them,  or  by  some  subsequent  act,  have,  and 
always  have  had  an  unlimited  control  over  their  respective  properties, 
and  may  alienate  in  fee,  or  make  what  estates  they  please  for  years, 
for  life,  or  in  tail,  as  fully  as  any  individual  may  do  with  respect  to  his 
own  property. 


AURORA,  ETC.   SOCIETY  V.   PADDOCK.  189 

AURORA,   &c.   SOCIETY  v.   PADDOCK. 

1875.     80  Illinois,  264.1 

CRAIG,  J.  This  was  a  bill  in  equity,  brought  by  appellees,  to  fore- 
close a  mortgage  executed  b}*  the  Aurora  Agricultural  and  Horticultural 
Societ\-  of  Aurora,  on  the  28th  day  of  December,  1870,  to  secure  the 
payment  of  $6000  loaned  by  John  R.  Coulter  to  the  society.  The 
court,  on  a  hearing  of  the  cause,  rendered  a  decree  directing  a  sale  of 
the  mortgaged  premises  in  satisfaction  of  the  mortgaged  debt. 

The  society  has  prosecuted  this  appeal,  and  in  order  to  obtain  a  re- 
versal of  the  decree,  it  is  insisted  by  the  counsel  for  appellant : 

First  —  That  the  society  had  no  power  whatever  to  mortgage. 

Second  —  That  the  mortgage  in  question  was  wholly  unauthorized. 

The  appellant  was  organized  on  the  6th  da}-  of  March,  1869,  under  an 
act  approved  Feb.  15, 1855,  which  authorized  the  incorporation  of  agri- 
cultural societies.  (Gross'  Statutes,  1869,  page  119.)  By  the  third, 
section  of  the  act,  tbjmnnVty  was  mtvl0  a  bndjLforpnrfltpi  with  pawer 
to  sue  and  be  sued,  to  acquire  and  hold  reaj  est.atp  not  pvnppHing.  five 
hundred  acres,  to  construct  the  uefessaiy  jmprrtvpj]i£>ntg_qTij  buildings 
for  its  purpose,  to  have  and  employ  capital,  nnfl.nhipp.ry,  IJVP.  stnnk,  etc-, 
not  exceeding  in  value  $10.000. 

While  it  is  true,  no  section  of  the  act  confers  direct  authoritj1  upon 
the  societ}'  to  sell  or  mortgage  its  propert}*,  except  upon  a  dissolution 

Of  the    ^nrpnrntinn     y^f-.  t.hp  ar-t.  rlr>oa  nr>t    prnhiltif,  f>r  rggJT.fo  fhp    SOCieJty 

from_selling  or  giving  a  mortgage  upon  its  real  estate.  The  power  to 
mortgage,  when  not  expressly  given  or  denied,  must  be  regarded  as 
an  incident  to  the  power  to  acquire  anu  hold  real  estate  and  make 
contracts. 

We  understand  it  to  bp  tibf^nnnimonjawj-ule,  tha^corrjorations  have 
an  incidental  right  to  alien  or  disjjpse  of  their  lands  ajid  personal  prop- 


erty, unless  specially  restrained_by_the  act  under  which  they  are  organ- 
ized or  by  statute., 

It  is  said  in  Angell  &  Ames  on  Corporations,  p.  153  :  "  Independent 
of  positive  law,  all  corporations  have  the  absolute  jus  disponendi, 
neither  limited  as  to  objects  nor  circumscribed  as  to  quantity."  The 
same  doctrine  is  clearly  laid  down  by  Kent,  vol.  2,  page  280. 

We  are,  therefore,  of  opinion,  as  the  society  was  not  prohibited  from 
mortgaging  its  lands,  it  possessed  the  power  to  do  so  as  an  incident  to 
the  power  to  purchase  and  hold  real  estate  and  make  contracts. 

Decree  affirmed. 
1  Statement,  and  part  of  opinion,  omitted.  —  ED. 


190  COMMONWEALTH   V.   SMITH. 


COMMONWEALTH  v.  SMITH  ET  ALS. 

1865.     10  Allen  (Mass.),  449. 

BILL  ix  EQUITY  seeking  to  impeach  the  validity  of  a  mortgage,  exe- 
cuted on  the  30th  of  July  1855  by  the  Troj'  and  Greenfield  Railroad 
Compan}-  to  the  defendants  as  trustees,  covering  by  its  terms  the  fran- 
chise, railroad,  and  all  other  property  of  the  corporation,  then  owned 
or  thereafter  to  be  acquired,  to  secure  bonds  to  the  amount  of  $900,000, 
to  be  issued  to  the  contractor  as  part  compensation  for  constructing 
the  railroad,  payable  in  thirty  years  from  date.  This  mortgage  Tecited 
the  provisions  of  a  contract  for  the  construction  of  the  railroad,  dated 
December  30,  1854,  to  the  effect  that  such  bond  should  be  given  ;  and 
it  was  made  subject  to  a  prior  mortgage  to  the  Commonwealth  to  secure 
state  bonds  to  the  amount  of  $2,000,000,  which  the  Commonwealth 
were  to  issue  under  the  provisions  of  St.  1854,  c.  226. 

The  following  facts  were  agreed :  Since  the  execution  of  the  mort- 
gage to  the  defendants,  the  Commonwealth  have  received  two  other 
mortgages  upon  the  railroad  and  franchise  of  the  Troy  and  Greenfield 
Railroad  Compan}-,  one  of  which  was  dated  on  the  6th  of  Jul}'  1860, 
and  the  other  on  the  5th  of  March,  1862  ;  and  also  a  surrender  from 
the  corporation  of  all  their  property  subject  to  redemption  under 
St.  1862,  c.  156.  On  the  4th  of  September  1862  the  Commonwealth 
took  possession  of  the  mortgaged  premises  in  various  towns,  for  breach 
of  condition,  in  the  manner  shown  by  various  certificates  thereof,  which 
are  now  immaterial.  The  Commonwealth  under  their  various  mort- 
gages have  at  various  times,  from  October  1858  to  July  1861,  advanced 
to  the  Troy  and  Greenfield  Railroad  Company,  large  sums  of  money, 
amounting  in  all  to  several  hundred  thousand  dollars.  The  corpora- 
tion, under  their  mortgage  to  the  defendants,  have  at  various  times, 
from  August  1855  to  July  1861,  issued  bonds  to  the  amount  in  all  of 
$600,000,  payable  in  thirty  j^ears  from  date.  All  of  these  bonds  were 
issued  in  good  faith,  and  are  held  by  bonafide  holders,  and  the  corpo- 
ration have  issued  no  other  bonds  than  the  above.  Before  advancing 
any  money  to  the  corporation,  the  Commonwealth  had  actual  notice  of 
the  execution  of  the  mortgage  to  the  defendants,  and  of  the  fact  that 
a  number  of  bonds  had  been  issued  under  the  same.  The  amount  of 
capital  stock  of  the  corporation  which,  in  December  1856,  had  been 
paid  in  was  $143,905.77. 

Upon  these  facts,  and  others  which  are  now  immaterial,  the  case  was 
reserved  by  the  chief  justice  for  the  determination  of  the  whole  court. 

D.  Foster,  for  the  Commonwealth.  The  mortgage  to  the  defendants 
lias  never  been  sanctioned  or  ratified  by  the  legislature,  and  its  validity 
must  depend  on  the  question  whether  the  common  law  powers  of  railroad 
corporations  in  Massachusetts  permit  them  to  execute  mortgages,  and  if 
so  to  what  extent.  At  common  law,  a  railroad  corporation  has  no  power 


COMMONWEALTH  V.   SMITH.  191 

to  execute  any  mortgage.  This  is  clear!}1  the  English  rule.  Winch  v. 
Birkenhead,  &c.  Railway,  1  Railw.  &  Canal  Cas.  384.  Reman  v.  Ruf- 
ford,  Ib.  48.  South  Yorkshire  Railway,  &c.  v.  Great  Northern  Rail- 
way, 9  Exch.  84.  /Shrewsbury,  &c.  Railway  \.  North  Western  Railway •, 
6  H.  L.  Cas.  113.  It  is  also  the  prevailing  opinion  in  this  country. 
Pierce  v.  Emery,  32  N.  H.  504.  Hall  v.  Sullivan  Railroad,  21  Law 
Reporter,  138.  Tippets  v.  Walker,  4  Mass.  595.  Gue  v.  Tide  Water 
Canal  Co.  24  How.  257.  Worcester  v.  Western  Railroad,  4  Met.  564. 
Treadwell  v.  Salisbury  Manuf.  Co.  7  Gray,  404.  Opinion  of  Jus- 
tices, 9  Gush.  611.  Salem  Mill  Dam  v.  Ropes,  6  Pick.  32.  The 
statutes  of  Massachusetts  confer  no  such  authority.  St.  1854,  c.  286. 
Gen.  Sts.  c.  63,  §§  120-123. 

[Remainder  of  argument  omitted.] 

S.  Bartlett  &  C  Allen,  for  the  defendants.  Even  if  it  be  conceded 
that  the  franchise  to  be  a  corporation  and  the  delegated  right  of  emi- 
nent domain  are  inalienable,  there  is  nothing  in  the  nature  of  a  fran- 
chise to  operate  a  railroad  which  is  of  that  character.  A  corporation 
enters  into  no  contract  with  the  state  that  it  will  go  on  and  act  under 
its  charter.  The  security  of  the  state  is  founded  upon  the  rules  which 
it  prescribes  and  the  restrictions  which  it  imposes  and  the  power  which 
it  reserves  to  repeal  or  alter  at  will ;  and  upon  the  power  which  resides 
in  courts  to  enforce  the  due  execution  of  the  powers  which  are  granted, 
or  exact  forfeitures  in  case  of  abuse.  It  is  quite  immaterial  what  per- 
sons ma}'  compose  the  corporation  ;  the  individuals  may  all  change, 
but  the  same  duties  will  rest  upon  the  corporation.  The  great  weight 
of  American  authority  is  in  favor  of  the  existence  of  this  power.  Mor- 
rill  v.  Noyes,  3  Ainer.  Law  Reg.  (N.  S.)  18.  Miller  v.  Rutland,  &c. 
Railroad,,  36  Verm.  452,  and  cases  cited.  Platt  v.  New  York,  &c. 
Railroad,  26  Conn.  544.  Hall  v.  Sullivan  Railroad,  21  Law  Re- 
porter, 138.  Bowman  v.  Watken,  2  McLean,  393, 394.  Union  Rank 
v.  Jacobs,  6  Humph.  (Tenn.)  515.  Dinsmore  v.  Racine,  <&c.  Rail- 
road, 12  Wisconsin,  649.  Macon,  &c.  Railroad  v.  Parker,  9  Georgia, 
377.  Pollard  v.  Maddox,  28  Alab.  321.  Allen  v.  Montgomery  Rail- 
road, 1 1  Alab.  454.  The  course  of  legislation  in  Massachusetts  has 
recognized  this  as  a  common  law  power.  Sts.  1857,  c.  178,  §§  1,  5  ; 
1854,  c.  423  ;  c.  286,  §  3  ;  1841,  c.  44 ;  Rev.  Sts.  c.  39,  §  83 ;  c.  44, 
§  11,  et  seq.  The  validit}-  of  a  conveyance  executed  by  full  authority 
of  a  corporation,  cannot  be  questioned  b}*  third  parties,  on  the  ground 
that  the  corporation  itself  had  no  authority  to  execute  it.  Although 
a  corporation  has  exceeded  its  authorit}-,  yet  the  question  cannot  be 
tried  collaterally,  but  it  is  a  matter  between  the  corporation  and  the 
state.  In  this  case,  the  Commonwealth  stands  in  the  attitude  of  an 
individual.  The  corporation  itself,  while  retaining  the  consideration 
could  not  maintain  a  bill  in  equity  to  escape  from  its  contracts  and 
conveyance.  Chester  Glass  Co.  v.  Dewey,  16  Mass.  102,  and  cases 
cited.  Parish  v.  Wheeler,  22  N.  Y.  502.  The  Commonwealth,  taking 
only  a  quitclaim  title,  take  subject  to  all  equities  of  which  they  have 


192  COMMONWEALTH   V.  SMITH. 

notice.  They  succeed  to  the  rights  of  the  corporation  and  to  no  more. 
To  hold  that  the  Commonwealth  can  question  this  conveyance  would 
be  to  hold  that  they  have  greater  rights  than  their  grantor  had.  This 
cannot  be.  Parker  v.  Nightingale,  6  Allen,  344,  345.  Joslyn  v. 
Wyrnan,  5  Allen,  62.  Taylor  v.  Dean,  1  Allen,  251.  Vermont,  &c. 
Railroad  v.  Vermont  Central  Railroad,  34  Verm.  1.  Morrill  v. 
Noyes,  ubi  supra.  Silver  Lake  Bank  v.  North,  4  Johns.  Ch.  370. 

[Remainder  of  argument  omitted.] 

HOAR  J.  The  question  whether  the  mortgage  made  to  the  defend- 
ants by  the  Troy  and  Greenfield  Railroad  Company  is  of  any  validity 
against  the  Commonwealth  requires  the  court  to  give  a  construction  to 
the  provisions  of  St.  1854,  c.  286.  To  ascertain  what  the  legislature 
intended  to  authorize  or  prohibit  by  that  statute,  it  will  be  expedient 
first  to  consider  what  were  the  powers  of  railroad  companies  in  rela- 
tion to  the  issue  of  bonds  and  the  making  of  mortgages  at  common 
law,  or  before  the  statute  was  enacted. 

There  seems  to  be  no  reason  why  a  railroad  corporation  should  not 
be  considered  as  Having  power  to  make  a  bond  for  an}'  purpose  for 
which  it  may  lawfully  contract  a  debt,  without  any  special  authority  to 
that  effect,  unless  restrained  by  some  restriction,  express  or  impl led, 
in  its  charterer  in  some  other  legislative  act.  A  bond  is  merely  an 
obligation  under  seal.  A  corporation  having  the  capacity  to  sue  and 
be  sued,  the  right  to  make  contracts,  under  which  it  may  incur  debts, 
and  the  right  to  make  and  use  a  common  seal,  a  contract  under  seal  is 
not  only  within  the  scope  of  its  powers,  but  was  originally  the  usual 
and  peculiarly  appropriate  form  of  corporate  agreement.  The  general 
power  to  dispose  of  and  alienate  its  property  is  also  inci  d  e  ntaljo  ey  e  ry  _ 
corporation  not" restricted  in  tnis  respect  b}T  express  legislation,  or  J>y 
n  thej)urposes  for_which  it  is  created,  and  the  nature  of  the  duties  and 
liabilities  imposed  by  its  Charter."  Treadwell  v.  Salisbury  Manuf. 
'Co.  7  Gray,  404. 

But  in  the  case  of  a  railroad  company,  created  for  the  express  and 
sole  purpose  of  constructing,  owning,  and  managing  a  railroad  ;  author- 
ized to  take  land  for  this  public  purpose  under  the  right  of  eminent 
domain  ;  whose  powers  are  to  be  exercised  b}-  officers  expressly  desig- 
nated by  statute ;  having  public  duties,  the  discharge  of  which  is  the 
leading  object  of  its  creation  ;  required  to  make  returns  to  the  legisla- 
ture ;  there  are  certainly  great,  and,  in  our  opinion,  insuperable  objec- 
tions to  the  doctrine  that  its  franchise  can  be  alienated,  and  its  powers 
and  privileges  conferred  by  its  own  act  upon  another  person  or  body, 
without  authority  other  than  that  derived  from  the  fact  of  its  own 
incorporation.  The^  franchise  to  hq  »  norpfii-a.f-.inn  clearly  cannot  be 
transferred  by  any  corporate  body,  of  its  own  will.  Such  a  franchise 
is  not,  in  its  own  nature,  transmissible.  The  power  to  mortgage  ca,n^ 
only  be  coextensive  with  the  power  to  alienate  absohitejx1_because_r 
every  mortgage  may  become  an  absolute  conveyance  by  foreclosure. 
And  although  the  franchise  to  exist  as  a  corporation  is  distinguishable 


COMMONWEALTH   V.   SMITH.  193 

from  the  franchises  to  be  enjoyed  and  used  by  the  corporation  after  its 
creation,  yet  the  transfer  of  the  latter  differs  essentially  from  the  mere 
alienation  of  ordinary  corporate  property.  The  right  of  a  railroad 
company  to  continue  in  being  depends  upon  the  performance  of  its 
public  duties.  Having  once  established  its  road,  if  tbatjtnd  its,  fran- 
chise of  jnanagjng^ising  and  taking  tolls  or  fares  upon  the  same  are 
alienated,  its  wholepower  to  perform  its__most  important  functions  is^ 
.at  an  enfl.  A  manufacturing_company  may  sell  its 


another  ;  but  a  railroad  company  cannot  make  a  new  railroad  alLiis 
pleasure. 

The  whole  reasoning  of  the  court  in  the  case  of  Whittenton  Mills  v. 
Upton,  10  Gray,  582,  in  which  it  was  held  that  a  manufacturing  cor- 
poration has  no  power  to  make  a  contract  of  co-partnership  applies 
with  much  greater  force  to  the  transfer  of  its  franchise  by  a  railroad 
company. 

No  case  has  been  cited  in  which  the  exercise  of  such  a  power  has 
ever  been  judicially  sanctioned  in  this  commonwealth,  where  there  was 
not  express  legislative  authority  for  it;  and  the  cases  in  which  the 
legislature  has  expressly  conferred  the  power,  or  confirmed  its  exercise, 
furnish  at  once  a  strong  implication  that  it  would  not  otherwise  exist, 
and  afford  a  solution  of  the  allusion  to  railroad  mortgages  which  occurs 
in  the  statutes. 

[The  learned  Judge  then  held,  that  the  issue  of  bonds  was  in  con- 
travention of  Statute  1854,  chapter  286;  and  said  that  "the  bonds 
being  invalid,  the  mortgage  to  secure  them  is  invalid  likewise."  The 
opinion  concludes  as  follows  :] 

We  find  no  evidence  that  the  Commonwealth  has  ever  known  and 
sanctioned  the  irregular  and  illegal  issue  of  the  bonds  in  question, 
either  directly  or  by  implication.  Nor  do  we  think  that  the}*  fall  within 
the  class  of  cases  in  which  it  has  been  held  that  a  violation  of  corpo- 
rate powers  cannot  be  taken  advantage  of  collate  rail}'.  The  second 
mortgage  to  the  Commonwealth  gives  it  a  direct  interest  in  the  prop- 
erty, and,  not  being  made  expressly  subject  to  any  prior  incumbrance, 
gives  the  right  to  maintain  and  prove  that  the  supposed  conveyance  to 
the  defendants  was  illegal  and  void. 

The  result  to  which  the  point  decided  leads  is  this  :  that,  the  defend- 
ants having  no  title  which  the}'  can  maintain  against  either  of  the  mort- 
gages to  the  Commonwealth,  the  plaintiffs  have  a  plain,  complete  and 
adequate  remedy  at  law  for  any  interference  with  the  mortgaged  prop- 
erty, and  the  bill  must  be  dismissed. 


13 


194  PLYMOUTH   RAILROAD   CO.   V.   COLWELL. 


PLYMOUTH  R.  R.  CO.  v.  COLWELL  ET  AL. 

1861.     39  Pa.  State,  337. 1 

ERROR  to  the  Common  Pleas  of  Montgomery  Count}7. 

Ejectment  against  Stephen  Colwell  and  Susanna  Jacob}',  for  a  lot  of 
ground,  ."containing  about  two  acres  of  land,  or  thereabouts." 

In  1836,  plaintiffs  were  incorporated  as  a  railroad  company.  In 
1837,  they  bought  of  Lukens  a  farm  of  40  acres  and  104  perches, 
through  which  their  road  was  to  pass.  They  built  across  this  land  a 
railroad,  suitable  only  for  horse  power.  In  1841,  they  sold  to  Freed ly 
and  others  38  acres  and  130  perches  of  the  Lukens  farm,  retaining  only 
1  acre  and  134  perches,  the  premises  now  in  dispute.  In  1844,  this 
retained  lot  was  sold  at  sheriff's  sale,  on  a  judgment  of  Leedom  against 
the  company.  The  levy  and  sale  described  the  premises  as  "  two 
acres  more  or  less,  on  a  part  of  which  is  the  Plymouth  Basin,  and  the 
Plymouth  Railroad  passes  across  said  lot,  subject  to  the  corporate  fran- 
chises of  the  said  Plymouth  Railroad  Company  over  a  part  of  said  lot 
if  any  they  have."  In  1849,  Freedly  conveyed  part  of  the  premises  to 
Colwell ;  and  Freed  ly's  executors,  in  1853,  conveyed  the  residue  to 
Susanna  Jacoby.  There  was  a  "basin"  on  the  Lukens  farm  before 
the  company  bought.  After  their  purchase,  the  company  deepened  the 
basin,  so  as  to  accommodate  canal-boats  brought  in  there  to  receive 
freight  from  the  railroad.  The  company  insisted  on  their  right  to  retain 
the  basin  for  this  purpose ;  and  they  claimed  the  rest  of  the  ground  for 
the  tracks  of  their  road,  for  depots,  engine-houses,  &c. 

The  case  was  tried  upon  the  issue  formed  by  the  usual  plea  of  "not 
guilty,"  and  resulted  in  a  verdict  and  judgment  for  defendants  ;  where- 
upon plaintiffs  brought  error. 

It  appeared,  on  the  argument,  that  the  land  for  which  Colwell  de- 
fended was  not  within  the  description  of  plaintiffs'  declaration. 

D.  H.  Mulvany,  for  plaintiffs. 

H.  M.  Mitter,  and  James  Boyd,  for  defendants. 

WOODWARD,  J.     [After  stating  the  facts.]     What  was  the  effect  of 
the  sheriff's  sale  on  the  company's  title?     They  had  very  express  au- 
thority by  the  incorporating  law  to  buy,  hold,  mortgage,  and  sell  lands ; 
and  in  locating  their  road  they  probably  found  it  expedient  to  buy  the 
Lukens  farm,  rather  than  pay  damages  for  crossing  it.     This  is  often 
the  true  policy  of  railroad  companies.     But  lands  so  bought,  ^nd_not. 
actually  dedicated  to  corporate  purposes,  are  bound  by  the  |ien  of  judg-- 
ments,  aricl  are  liable~to  be  levied  in  execution,  and  sold _  bv__the_sherjff.. 
in  the  same  manner  and  with  the  sameeflect_as  the  lands  of  any  other, 
debtorT    AVto  land  which  hag  been  appropriated  to  corporate  objects^ 
and  is  Decessarjrjorjjie  full  enjoyment  and  exercise  of  any  franchise 

1  Statement  abridged.    Portions  of  opinion  omitted.  —  ED. 


PLYMOUTH   RAILROAD   CO.   V.  COL  WELL.  195 

of  the  company,  ^whether  acquired  by  purchase  or  by  exercise  of  the, 
delegated~power  of  eminent  domain,  the  company  hold  it  entirely 
exempt  from  levy  and  sale ;  and  this  on  no  ground  of  prerogative  or 
corporate  immunity,  for  the  compan\'  can  no  more  alien  or  transfer 
such  land  03-  their  own  act  than  can  a  creditor  by  legal  process ;  but 
flippy pmpt inn  re^s  on  the  publicjntercsts  involved  in  the  corpora tion ._ 
Though  the  corporation  in  respect  to  its  capital  is  private,  yet  it  was 
created  to  accomplish  objects  in  which  the  public  have  a  direct  interest. 
and  its  authority  to  hold  lands  was  conferred  that  these  objects  might 
be  worked  out.  They  shall  not  be  balked,  therefore,  by  either  the  act 
of  the  company  itself  or  of  its  creditors.  Foj^the~sake  of  the  public, 
whatever  is  essential  to  thecorporate  functions  shall  be  retained  by  the 
corporation.  The  only  remedy  which  the  law  allows  to  creditors  against 
propert}'  so  held  is  sequestration :  9  W.  &  S.  28.  And  that  remedy  is 
consistent  with  corporate  existence,  whilst  a  power  to  alien,  or  liability 
to  lev}'  and  sale  on  execution,  would  hang  the  existence  of  the  corpora- 
tion on  the  caprices  of  the  managers  or  on  the  mercy  of  its  creditors. 
For,  the  corporation  would  cease  to  exist  for  the  purposes  of  its  insti- 
tution, when  its  means  of  subsistence  were  gone.  It  might  still  have  a 
name  to  live,  but  it  would  be  only  a  life  in  name.  A  railroad  company 
could  scarcely  accomplish  the  end  of  its  being,  after  the  ground  on 
which  its  rails  rest  had  been  sold  to  a  stranger.  If  such  is  in  general 
the  law  of  corporate  tenures  which  are  essential  to  corporate  functions, 
it  is  peculiarly  the  law  of  this  case  where  Freedly  took  his  title  from 
the  sheriff,  expressly  subject  to  the  franchises  of  the  Plymouth  Railroad 
Company. 

Then  what  are  the  franchises  of  this  company  ?  Do  the}-  include  a 
right  to  the  basin  for  purposes  of  navigation  ? 

...  A  canal-basin  is  not  a  legitimate  incident  of  a  railroad  having 
no  authorized  canal  connection.  Neither,  therefore,  under  the  gen- 
eral principles  of  law,  nor  the  particular  qualification  expressed  in  the 
sheriff's  deed  to  Freedly,  was  this  basin  held  as  an  appurtenant  of  the 
railroad,  and  hence  a  valid  title  passed  by  the  sheriff's  sale  to  Freedly, 
and  through  him  to  Mrs.  Jacoby. 

But  the  whole  lot  was  sold,  and  included  the  very  bed  of  the  road,  as 
well  as  the  ground  that  was  needed  for  a  depot  and  other  buildings. 
As  to  such  portions  of  the  lot  as  were  occupied  or  appropriated  for 
these  purposes,  no  title  passed  to  Freedhr,  and  none,  of  course,  vested 
in  Mrs.  Jacoby.  Yet  she  having  taken  defence  for  the  whole,  the  ver- 
dict ought  to  have  distinguished  what  was  lawfully  appurtenant  to  the 
road,  and  what  was  not.  The  company  must  be  protected  in  the 
possession  of  all  that  is  really  essential  to  the  enjoyment  of  their 
franchise. 

Their  charter  authorizes  them  to  appropriate  four  rods  in  width,  and 
limits  them  to  that,  except  in  deep  cuts  and  fillings,  or  at  points  selected 
for  depots,  or  engine  or  water  stations.  It  evidently  contemplated  a 


196  BRADBURY  V.  BOSTON  CANOE  CLUB. 

locomotive  road,  and  it  gave  them  five  years  to  complete  it,  "  according 
to  the  true  intent  and  meaning  of  this  act."  In  ascertaining  the  neces- 
sary appurtenances  of  the  road,  regard  is  to  be  had  to  this  limitation  of 
time,  for  the  appropriations  of  ground  were  to  be  all  made  within  that 
time. 

•  •**••••• 

These  seem  to  us  to  be  the  principles  on  which  this  cause  ought  to 
have  been  decided.  Most  of  them  were  observed  by  the  learned  judge  in 
his  rulings ;  but  what  portion  of  the  ground  had  become  appurtenant  to 
the  road  by  appropriation  such  as  we  have  described,  was  a  question  oi 
fact  which  ought  to  have  been  submitted  to  the  jury.  And  there  was 
some  evidence  on  the  point  in  the  admitted  portions  of  Carson's  depo- 
sitions. If  there  ever  was  any  appropriation  made  by  stakes  or  fences, 
or  other  acts  on  the  ground,  the  company  ought  to  be  able  to  show  it 
by  the  most  irrefragable  proof.  The  assignments  of  error,  founded  on 
bills  of  exception  to  evidence,  were  apparently  made  in  studious  dis- 
regard of  the  rules  prescribed  in  6  Harris  568,  especially  Rule  viii. ; 
but  still,  we  have  gone  through  them  as  well  as  we  could,  and  neither 
in  them  nor  in  the  answers  to  the  points  propounded,  do  we  see  any 
other  ground  for  reversing  the  judgment  than  the  failure  to  submit  to 
the  jury  the  question  how  much  of  the  ground  in  dispute  the  company 
had  actually  appropriated  to  the  lawful  purposes  of  their  corporation. 

The  judgment  is  reversed,  and  a  venire  facias  de  novo  is 
awarded  as  to  Susanna  Jacoby,  and  judgment  affirmed  as 
to  Stephen  Colwell. 


SECTION  IV. 

Power  to  Borrow  Money,     Power  to  issue  Negotiable  Notes. 
BRADBURY  v.   BOSTON   CANOE  CLUB. 

1891.     153  Massachusetts,  77. 

HOLMES,  J.  This  is  an  action  upon  a  promissory  note  for  one 
h u n dred  and  fifty  dollars  and  interest,  given  by  the  defendant,  to  t.hn 
plaintiff  forjnoney  lent  to  it  bv  the  plaintiff  to  be  used  in  building  JL 

rlnb-hnnsft. There  is  a  second  count  for  mone}'  lent.     At  a  meeting, 

duty  called,  the  corporation  passed  a  vote  authorizing  its  treasurer  to 
borrow  money  in  terms  sufficiently  broad  to  cover  the  loan  in  question. 
The  suggestion  that  no  sufficient  notice  of  the  business  to  be  transacted 
was  given,  does  not  seem  to  us  fairly  open  on  the  agreed  facts.  More- 
over, it  would  be  impossible  to  argue  that  the  defendant  had  not  recog- 
nized and  ratified  the  act  of  its  treasurer  in  borrowing  from  the  plaintiff. 


BATEMAN   V.   MID-WALES   KAILWAY   CO.  197 

The  money  was  received  by  the  corporation,  and  was  used  by  it  for  the 
purpose  mentioned.  The  only  question  for  us  is,  whether  the  corpora- 
tion acted  illegally  in  borrowing  mone}'  for  the  purpose  of  erecting  a 
club-house  upon  land  of  which  it  held  a  lease. 

The  defendant  is  a  corporation  formed  under  the  Pub.  Sts.  c.  115, 
§  2,  for  encouraging  athletic  exercises.  By  §  7  it  "  may  hold  real  and 
personal  estate,  and  ma}-  hire,  purchase,  or  erect  suitable  buildings  for 
its  accommodation,  to  an  amount  not  exceeding  five  hundred  thousand 
dollars,"  etc.  We  are  of  opinion  that  under  these  words  the  defendant 
had  power  to  take  a  lease  of  land  and  to  erect  a  suitable  club-bouse 
~uponTL__  Having  this  power,  it  was  entitled  to  raise  money  for  the  pur-  ' 
pose.  No  argument  is  needed  to  show  that  the  power  at  the  end  of  §  7, 
to  receive  and  hold  in  trust  funds  received  by  gift  or  bequest,  does  not 
confine  the  corporations  to  that  mode  of  raising  it.  Borrowing  money 
js_a  usual  and  proper  means  of  accomplishing  what  the  statute  ex.- 
presslyj^ermjis.  See  Fay  v.  Noble,  12  Cush.  1, 18  ;  Morville  v.  Ameri- 
can'Tfact  Society,  123  Mass.  129,  136;  Davis  v.  Old  Colony  Rail- 
road, 131  Mass.  258,  271,  275.  As  this  is  a  sufficient  reason  forgiving 
the  plaintiff  judgment,  it  is  unnecessary  to  consider  whether  there  are 
not  others.  Judgment  for  the  plaintiff \ 

C.  J.  Mclntire  &  F.  Hunt,  for  the  plaintiff. 

C.  H.  Sprague,  for  the  defendant. 


BATEMAN  v.  MID-WALES  RAILWAY  CO. 

NATIONAL,   &c.,  CO.  v.  SAME. 
OVEREND,  GURNEY,  &  CO.  (LIMITED)  v.  SAME.1 

1866.     Law  Reports,}.  Common  Pleas,  499. 

THESE  were  actions  brought  by  the  respective  plaintiffs  against  the 
defendants,  a  railway  company,  incorporated  under  the  22  &  23  Viet, 
c.  Ixiii.,  the  5th  section  of  which  prescribed  the  limit  of  their  capital 
(170,000?.),  and  the  7th  and  9th  the  mode  of  raising  it;  the  37th  and 
38th  impowered  them  to  contract  for  working  the  traffic  upon  the  rail- 
way, and  the  1st  section  incorporated  the  provisions  of  the  Companies 
Clauses  Consolidation  Act,  1845  (8  &  9  Viet.  c.  16)  ;  the  Lands  Clauses 
Consolidation  Act,  1845  (8  &  9  Viet.  c.  18),  and  the  Railways  Clauses 
Consolidation  Act,  1845  (8  &  9  Viet.  c.  20)  ;  but  there  was  no  HED- 
vision  in  terms  impowerin^  them  to  draw,  accept,  or  indorse  bills  of 
exchange  or  promissory  notes. 

The  declaration  in  each  case  charged  the  company  as  the  acceptors^ 
of  several  bills  of  exchange,  drawn  respectively  by  John  Watson  &  Co., 

1  Arguments  omitted ;  also  the  concurring  opinions  of  BYLF.S  J.,  and  KEATING  J. 


198  BATEMAN   V.   MID-WALES   RAILWAY   CO. 

and  purporting  to  be  accepted  in  the  following  form  :  —  "  Accepted  by 
order  of  the  board  of  directors,  and  payable  at  the  Agra  and  Master- 
man's  Bank.  John  Wade,  secretary,"  with  the  seal  of  the  company 
annexed.  It  was  proved  (or  admitted)  in  each  case,  that  the  company 
had  actually  commenced  business  as  a  railway  company,  and  that  there 
was  a  resolution  of  a  board  of  directors  authorizing  the  acceptance  of 
the  bills  in  question,  as  above. 

Under  the  plea  traversing  the  acceptance,  it  was  contended  on  the 
part  of  the  defendants,  at  the  trial  before  Erie,  C.  J.,  at  the  sittings  in 
London  after  last  HilaiT  Term,  that  the  company  had  no  power  by  law 
to  accept  bills  of  exchange  ;  and  further,  that,  assuming  that  they  had 
such  power,  the  bills  declared  on  were  not  accepted  in  such  form  as  to 
be  binding  on  them. 

His  Lordship  directed  verdicts  to  be  entered  for  the  plaintiffs  in  each 
action,  reserving  leave  to  the  defendants  to  move  to  enter  nonsuits  if 
the  Court  should  think  the  objections  or  either  of  them  well  founded. 

Kar slake,  Q.  C.,  obtained  rules  nisi. 

E.  James,  Q.C.,  and  Sir  G.  Honyman,  for  plaintiffs  in  first  and 
second  actions. 

Karslake,  Q.  C. ,  and  Holland,  for  the  defendants. 

Bovill,  Q.  C.)  and  Mathew,  for  plaintiffs  in  third  action. 

ERLE,  C.J.  These  were  actions  by  the  indorsees  against  the  accept- 
ors of  several  bills  of  exchange.  The  defendants  pleaded  in  each  action 
that  they  did  not  accept.  It  appeared  that  the  defendants  are  a  com- 
pany incorporated  b}-  an  act  of  22  &  23  Viet.  c.  Ixiii.  for  the  purpose  of 
making  and  working  a  railway  in  Wales.  The  precise  purposes  for 
which  they  are  incorporated,  and  the  powers  which  are  intrusted  to 
them,  are  limited  and  defined  b}T  the  special  act  and  the  provisions  of 
the  general  acts  incorporated  therewith.  I  take  it  to  be  well  estab- 
lished that  a  corporation  established  for  a  specific  purpose  cannot  bind 
s-  itself  by  a  contract  which  is  entirely  unconnected  with  the  purposes  of  . 
its  incorporation.  The  question  then  is,  whether  this  company,  being  a^ 
corp-oratiQn.-C¥eftte^for~"tho  sppHfiV  purpose  of  making  a  railway,  can 
lawfully  bind  itself  by  accepting  a  bill  of  exchange.  I  am  of  opinion, 
that  it  cannot^  The  bill  of  exchange  is  a  cause  of  action,  a  contract  by 
itself,  which  binds  the  acceptor  in  the  hands  of  any  indorsee  for  value  ; 
and  I  conceive  itwouldbe  altogether  contrary  to  the  principles  of  the 
law  which  regulates  such  instruments  that  they  should  be  valid  or  not/ 
according  as  the  ^consideration  between  the  original  parties  was  goo(L 
or  bad,  —  or  whether,  in  the  case  of  a  corporation,  the  consideration 
in  respect  of  which  the  acceptance  is  given  is  sufficiently  connected 
with  the  purposes  for  which  the  acceptors  are  incorporated.  It  would 
be  inconvenient  to  the  last  degree  it"  such  an  inquiry  could  be  gone  into. 
Some  bills  might  be  given  for  a  consideration  which  was  valid,  as  for 
work  done  for  the  company,  and  others  as  a  security  for  mone}'  obtained 
on  loan  beyond  their  borrowing  powers.  It  would  be  a  pernicious  thing 
to  hold  that,  in  respect  of  the  former,  the  corporation  might  be  sued  by 


BATEMAN  V.   MID-WALES   RAILWAY   CO.  199 

an  indorsee,  but  in  repect  of  the  latter  not.  So  much  for  the  general 
bearing  of  the  question  upon  principle.  How  stands  the  matter  as  to 
authority?  Subject  to  three  exceptions,  I  find  no  case  in  which  an 
action  upon  a  bill  of  exchange  or  promissory  note  has  been  sustained 
against  a  corporation  :  and  these  exceptions  prove  the  rule.  In  Slark 
v.  Highgate  Archway  Company,1  the  company  was  impowered  by  its 
act  of  parliament  to  accept  bills  for  the  specific  purpose  :  and  in  the 
cases  of  the  Bank  of  England  and  the  East  India  Company,  the  negoti- 
ation of  bills  and  notes  was  within  the  very  scope  and  object  of  their 
incorporation.  In  no  other  case  that  I  am  aware  of  has  the  liability  of 
a  corporation  ever  been  enforced.  In  JBroughton  v.  Manchester  Water- 
icorks  Company*  the  doctrine  I  have  stated  is  laid  down  in  general 
terms  :  and  Bayley,  J.,  entertained  a  doubt  whether  the  holder  of  a  bill 
of  exchange  accepted  by  a  corporation  could  sue  the  corporation  with- 
out shewing  that  the  acceptance  was  given  for  a  purpose  for  which  it 
was  competent  to  the  corporation  to  accept.  That  proposition  derives 
much  more  force  when  applied  to  the  case  of  a  corporation  created  for 
a  specific  purpose,  as  we  have  judicial  notice  from  the  act  of  parliament 
that  this  is.  Upon  both  principle  and  authorit}*,  therefore,  I  am  of 
opinion  that  the  acceptances  given  b}'  this  company  are  not  binding 
acceptances,  and  that  the  plea  is  established. 

MONTAGUE  SMITH,  J.  I  am  of  the  same  opinion.  The  plaintiffs  are 
indorsees,  and  not  immediate  parties  to  these  bills,  and  therefore  cannot 
recover  unless  the  bills  are  in  their  inception  valid  instruments.  I  am 
clearly  of  opinion  that  it  was  not  within  the  competenc}'  of  this  company 
to  accept  bills.  It  is  a  company  incorporated  for  the  formation  of  a 
railwa}',  with  a  limited  capital  and  limited  powers  of  borrowing  money. 
Jf  fi'fh  a  fntppany  bad  power  to  accept  hills  of  p.ynhangft,  the  conse^- 
quence  would  be  either  that  theymight  bind  themselves  by.  Acceptances 
loan  unlimited  extent,  or  tbere~must  in  each  case  be  an  inquiry  whether.* 
the  hill  was  given  for  the  payment  of  a  just  debt,  or  for  a  purpose  not 
warranted  b}-  their  incorporation.  I  think  that  it  was  not  the  intention 
of  the  legislature  that  they  should_ancept  bills  at  all.  The  shareholders 
advance  their  mone}'  upon  the  faith  of  the  limited  borrowing  powers. 
This  limit  would  be  illusoiT  if  the  directors  could  be  held  bound  by 
acceptances.  There  is  no  authority  to  shew  that  they  have  power  to 
accept,  and  there  is  much  authority  in  analogous  cases  the  other  way. 
It  has  been  held  that  mining  companies,  waterworks  companies,  gas 
companies,  salt  and  alkali  companies,  and  many  others,  all  more  in  the 
nature  of  trading  companies  than  this  company,  are  incapable  of  draw- 
ing, accepting,  or  indorsing  bills  of  exchange.  The  first  object  of  a 
railway  is  the  making  of  a  railway,  though  they  may  and  practically 
always  do  carry  on  the  business  of  carriers. 


jorjhe  i  jjurpose  -of  trading  may_have  power  to  issue  jiegptiablejnstru- 

ments  is  the  well-known  exception.     But  that  applies  where  the  pri- 

1  5  Taunt.  792.  2  3  B.  &  A.  1. 


200  UNION   BANK   V.   JACOBS. 

mary  object  of  the  incorporation  is  the  carrying  on  of  trade  as  other 
persons  carry  it  on,  viz.  by  buying  and  selling.  In  addition  to  the 
cases  already  referred  to,  there  is  the  distinct  authority  of  man}"  emi- 
nent text-writers  that  a  railway  companj'  cannot  accept.  I  will  refer  to 
one  considerable  authorit}',  the  late  J.  W.  Smith.  In  his  treatise  on 
Mercantile  Law,  after  speaking  of  the  disability  of  corporations  in 
general  to  accept  bills  he  says  : l  "  However,  it  has  been  considered 
that  a  trading  corporation  may  differ  from  others  as  to  its  powers  of 
contracting,  and  its  remedies  on  contracts  relating  to  the  purposes  for 
which  it  was  formed.  Thus,  such  a  corporation  ma,\  in  some  cases 
bind  itself  by  promissory  notes  and  bills  of  exchange  ;  and  it  was 
even  held  that  the  Bank  of  England  might  without  deed  appoint  an 
agent  for  such  purposes.  ^^3  ™rpr>rntir>p  will  m>t  have  these  extra- 
ordi n ar}-  powers  unless  the  nature  of  the  business  in  which  it  is  engagpd 
raises  a  necessary  implir>nf'rtn  oLtheir  existence."  No  express  power 
to  accept  is  given  to  this  compan}- :  nor  is  there,  in  m}'  judgment,  any 
necessary  implication  from  the  purposes  for  which  it  was  created.  For 
these  reasons,  I  am  of  opinion  that  the  rule  in  each  of  these  actions 
should  be  made  absolute.  Rules  absolute  to  enter  a  nonsuit. 


UNION   BANK  v.   JACOBS. 

1845.     6  Humphrey  (Tennessee),  515.2 

SUIT  against  Jacobs,  as  endorser  of  the  negotiable  note  of  the 
Hiwassee  Rail  Road  Company. 

By  Act  of  the  Tennessee  Legislature,  in  1835-6,  the  Hiwassee  R.  R. 
Co.  was  created  a  body  corporate,  with  perpetual  succession,  with 
power  to  sue  and  be  sued,  and  to  possess  and  enjoy  all  the  rights, 
privileges  and  immunities,  with  power  to  make  such  by-laws,  ordi- 
nances, rules,  and  regulations,  not  inconsistent  with  the  laws  of  this 
State  and  the  United  States,  as  shall  be  necessary  to  the  well  ordering 
and  conducting  the  affairs  of  said  company. 

By  the  2d  section,  the  capital  stock  was  declared  to  be  $600,000, 
and  the  corporate  powers  were  to  commence  when  $400,000  were 
subscribed. 

By  the  4th  section,  after  4000  shares  shall  have  been  subscribed, 
there  was  to  be  paid  on  each  share  such  sum  as  the  compan}r  might 
direct,  and  in  such  instalment,  not  exceeding  one  fourth  of  the  subscrip- 
tions in  any  one  year. 

By  the  12th  section,  if  the  capital  stock  of  the  company  be  found 
insufficient  for  the  purposes  of  the  road,  the  company  may  enlarge  it 
from  time  to  time,  so  as  not  to  exceed  in  the  whole  $1,500,000,  and 
new  subscriptions  for  that  purpose  to  be  opened. 

1  7th  ed.  by  Dowdeswell,  pp.  105-6.  a  Statement  abridged.  —  ED. 


UNION   BANK   V.   JACOBS.  201 

By  the  13th  section,  the  president  and  directors  are  invested  with  all 
the  powers  and  rights  necessary  for  the  building,  constructing,  and  keep- 
ing in  repair  of  the  railroad ;  and  they  may  cause  to  be  made,  or  con- 
tract with  others  for  making  of  said  road  or  any  part  thereof. 

Under  the  provisions  of  the  charter,  the  company  was  legally  organ 
ized  and  proceeded  to  construct  the  road.  The  company  became  in 
debted  to  Lonergin,  a  contractor,  for  grading  the  road,  in  the  sum  of 
$5000.  For  the  payment  of  this  debt,  the  company,  by  its  president, 
Jacobs,  executed  its  promissory  note  to  Jacobs,  negotiable  and  payable 
at  the  Union  Bank  four  mouths  after  date.  The  note  was  indorsed  by 
Jacobs  to  Trautwine,  and  by  him  to  the  Union  Bank,  and  the  proceeds 
were  passed  by  the  bank  to  the  credit  of  Lonergin.  At  maturity  the 
note  was  protested,  and  notice  given  to  the  endorsers.  Suit  was 
brought  against  Jacobs  as  endorser.  The  circuit  Judge  charged  the 
jury  "  that  the  note  was  drawn  by  the  Hiwassee  Rail  Road  Company 
in  violation  of  its  corporate  powers  ;  that  it  was  therefore  null  and  void; 
and  that  the  plaintiffs  were  not  entitled  to  recover."  1 

Verdict  for  defendant,  and  judgment.    Plaintiff  brought  error. 

Lyon,  for  plaintiff. 

W.  /Swan,  Maynard,  and  Sneed,  for  defendant. 

TURLEY,  J.  [After  stating  the  facts.]  It  is  contended  against  the 
plaintiffs  right  to  recover,  that  there  is  no  power  given,  either  ex- 
pressly or  by  necessary  implication,  by  the  charter  to  the  Hiwassee 
Rail  Road  Company,  to  borrow  money  or  to  execute  promissory  notes  ; 
and  that,  therefore,  the  note  executed  and  endorsed  to  the  Bank  is 
void,  both  as  against  the  maker  and  endorsers,  and  that  no  action  can 
be  maintained  against  them  thereon. 

The  construction  of  the  powers  of  corporations  has  been  a  fruitful 
source  of  litigation,  both  in  the  courts  of  Great  Britain  and  the  United 
States.  In  the  earlier  cases  the}'  were  construed  with  great  strictness, 
and  a  stringent  rule,  as  to  the  modeof  exercising  themenforced.  Mr. 
Story,  in  the  case  of  the  Bank  of  Columbia  vs.  Patterson,  Adra'r,  7th 
Cranch,  305,  says:  "Anciently  it  seems  to  have  been  held  that  cor- 
porations could  not  do  any  thing  without  deed  —  13th  H.  8,  12;  4th 
H.  7,  6  ;  7th  H.  7,  7,  9.  Afterwards,  the  rule  seems  to  have  been  re- 
laxed, and  they  were  for  convenience  sake  permitted  to  act  in  ordinaFv 
matters _  without  deed,  as  to  retain  a  servant,  cook,  or  butler  —  Plow. 
91  ;  2d  Saunders  395  —  and  gradually  this  relaxation  widened  to  em- 
brace other  objects  —  Bro.  Corp.  51  ;  3rd  Salk.  191 ;  3d.  Lev.  107.  At 
length,  it  seems  to  have  been  established,  that,  though  they  could  not 
contract  directly  except  under  their  corporate  seal,  yet  they  might,  by 
mere  vote  or  other  corporate  act,  not  under  their  corporate  seal,  appoint, 
^n  agent  whose  acts  and  contracts  withinthe  scope  of  his  authority 

1  The  above  is  the  charge  as  recited  in  the  opinion  of  the  Supreme  Court.  The  state- 
ment by  the  reporter  says  that  the  Judge  charged  "  that  the  Hiwassee  Company  had 
no  power  to  borrow  money,  and  that  the  note  given  in  execution  of  a  void  contract 
was  null  and  void  also."  —  ED. 


202  UNION   BANK  V.   JACOBS. 

would  be  binding  on  the  corporation  —  3d  P.  Wms.  419  ;  and  courts  of 
equity,  in  this  respect,  seeming  to  follow  the  law,  have  decreed  a  spe- 
cific performance  of  an  agreement  made  b}'  a  major  part  of  a  corpora- 
tion, and  entered  in  the  corporation  books,  although  not  under  the 
corporate  seal  —  1st  Fonblanque's  Equity  305.  This  technical  doctrine 
has  in  more  modern  times  been  entirely  broken  down."  The  same 
Judge,  in  continuation  in  the  same  case,  observes  :  "  The  doctrine  that 
a  corporation  could  not  contract  except  under  its  seal,  or  in  other 
words,  could  not  make  a  promise,  if  it  had  ever  been  full}'  settled, 
must  have  been  productive  of  great  mischief.  Indeed,  as  soon  as  the 
doctrine  was  established,  that  its  regularly  appointed  agents  could  con- 
tract in  their  name  without  seal,  it  was  impossible  to  support  it ;  for, 
otherwise,  the  party  who  trusted  such  contract  would  be  without  rem- 
edy against  the  corporation.  According!}'  it  would  seem  to  be  a  sound 
rule  of  law,  that  whenever  a  corporation  is  acting  within  the  snnpfi  of 
the  legiliinatejDurposes  of  its  institution,  all  parol  contracts,  made  by 
its  authorizedagents,  are  express  promises  of  the  corporation  :  and  all 
duties  imposed  upon  them  by  law,  and  all  benefits  conferred  at  their 
request,  raise  implied  promises,  for  the  enforcement  of  which,  an  ac- 
tion may  well  lie  —  3rd  Bro.  Ch.  Rep.  262  ;  Douglass  524  ;  3rd  Mass. 
Rep.  364;  5th  Mass.  89,  491 ;  6th  Mass.  50.  Whatever  of  strictness 
may  have  existed  in  the  earlier  cases,  in  restricting  their  power  of  con- 
tracting to  the  express  grant  of  authority,  has  been  also  greatby  re- 
laxed, and  the  doctrine  upon  the  subject  been  made  more  conformable 
to  reason  and  necessity,  the  powers  granted  to  corporations  being  now 
construed  like  all  other  grants  of  power,  not  according  to  the  letter, 
but  the  spirit  and  meaning.  In  Angell  &  Ames  on  corporations,  page 
192,  sec.  12,  it  is  said,  "  a  corporation  having  been  created  for  a  spe- 
cific purpose,  can  not  only  make  no  contracts  forbidden  by  its  charter, 
which  is,  as  it  were,  the  law  of  its  nature,  but  in  general  can  make  no 
contract  which  is  not  necessarj',  either  directly  or  incidentally,  to  en- 
able it  to  answer  that  purpose.  In  deciding,  therefore,  whether  a  cor- 
poration can  make  a  particular  contract,  we  are  to  consider,  in  the  first 
place._whetlier  its  charter,  or  some  statute  binding  upon  it,_Jorbid8  or 
permits  it  to  make  such  a  contract  j_and__if  the  charter  and  valid  statuj 
toiy  law  are  silent  urjon_the  subject,  in  the  second  place,  whetherthe 
power  to  make  such  a  contract  ma}'  not  be  implied  on  the  part  of  the 

nnrpnratinn,  fla  riii-pptly  r>r  inrJHfm1.fl.11y  nenessary  to  enable  it  to  fulfil 
the  purpose  of  its  existgngg^or,  whether  the  contract  is  entirely  foreign 
to  that  purpose^  In  general,  an  express  authorit}'  is  not  indispensable 
to  confer  upon  a  corporation  the  right  to  become  drawer,  endorser,  or 
acceptor  of  a  bill  of  exchange,  or  to  become  a  party  to  any  other  negoti- 
able paper.  It  is  sufficient,  if  it  he  inipli^i  na  thp  nanal  and  proper 
rngftnato  accomplish  the  purposes  of  the  charter.  —  Chitty  on  Bills,  5th 
Ed.  17  to  21  ;  Baily  on  Bills,  ch.  2,  sec.  7,  p.  69  (5th  Ed.)  Story  on 
Bills  of  Exchange,  sec.  79,  p.  94.  In  the  case  of  Mum.  vs.  Commis- 
sion, Co.  15th  Johnson  52,  Spencer,  J.,  who  delivered  the  opinion  of 


UNION  BANK  V.   JACOBS.  203 

the  court,  says :  "  It  has  been  strongly  urged,  that,  under  the  act  incor- 
porating this  company,  they  could  neither  draw  nor  accept  bills  of  ex- 
change. Their  power  is  undoubtedly  limited ;  they  are  required  to 
employ  their  stock  solely  in  advancing  money,  when  required,  on  goods 
and  articles  manufactured  in  the  United  States,  and  the  sale  of  such 
goods  and  articles  on  commission.  The  acceptance  of  a  bill  is  an 
engagement  to  pay  money ;  and  the  compan}r  may  agree  to  pay  or 
advance  mone}'  at  a  future  day,  and  they  may  engage  to  do  this  by 
the  acceptance  of  a  bill.  When  a  charter  or  act  of  incorporation  and 
valid  statutory  law  are  silent  as  to  what  contracts  a  corporation  may 
make,  as  a  general  rule,  it  has  power  to  make  all  such  contracts  as  are 
necessary  and  usual  in  the  course  of  business,  as  means  to  enable  it  to. 
attain  the"bbject  for  which  itjvas  created,  and  none  other.  The  crea- 
tion of  a  corporationTor  a  specific  purpose,  implies  a  power  to  use  the 
necessary  and  usual  means  to  effectuate  that  purpose.  —  Angell  & 
Ames  on  Corp.  200,  sec.  3. 

Mr.  Stoiy,  in  his  treatise  on  bills  of  exchange,  p.  95,  speaking  of  the 
power  of  corporations  to  draw,  endorse,  and  accept  bills  of  exchange, 
says  :  "  it  is  sufficient  if  it  be  implied  as  a  usual  and  appropriate  means 
to  accomplish  the  objects  and  purposes  of  the  charter.  But  when  the 
drawing,  indorsing  or  accepting  such  bills  is  obviously  foreign  to  the 
purposes  of  the  charter,  or  repugnant  thereto,  then  the  act  becomes  a 
nullity,  and  not  binding  on  the  corporation." 

In  the  case  of  the  People  vs.  the  Utica  In.  Co.,  15th  Johns.,  Thomp- 
son, Chief  J.,  who  delivered  the  opinion  of  the  court,  says,  at  page 
383,  "  an  incorporated  compan}-  has  no  rights  but  such  as  are  specialty 
granted,  and  those  that  are  necessary  to  carry  into  effect  the  powers  so 
granted." 

In  the  case  of  Mott  vs.  Hicks,  a  quantity  of  wood  was  purchased  for 
the  president  and  directors  of  the  Woodstock  Glass  Compan}-,  by  White- 
head  Hicks,  the  president  thereof,  for  which  he  executed  the  promis- 
sory note  of  the  compan}-  at  six  months.  It  appears,  from  a  reference 
in  argument  to  the  charter  of  the  compan}-,  that  there  was  no  clause 
authorizing  it  to  issue  bills  or  notes,  or  making  such,  if  issued,  bind- 
ing and  obligatory  upon  the  company  ;  yet  it  was  held  by  the  court, 
that  an  action  would  lie  against  the  corporation  upon  the  note,  it  hav- 
ing been  executed  by  its  legally  authorized  agent,  acting  within  the 
scope  of  the  legitimate  purposes  of  such  corporation.  —  1st  Cowen  513. 

In  the  case  of  Hayward  vs.  the  Pilgrim  Society,  21st  Pick.  270,  it 
was  held  that  the  trustees  of  a  society  incorporated  for  the  purpose  of 
building  a  monument,  in  virtue  of  their  authority  to  manage  the  finances 
and  property  of  the  society,  were  held  competent  to  bind  the  society  by 
a  promissory  note  through  the  agency  of  their  treasurer. 

These  authorities  fully  establish  the  proposition,  that  in  the  construc- 
tion of  charters  of  corporations,  the  power  to  contract,  and  the  mode 
of  contract}  ngjsnotjimited  to  the  express  grant,  but  may  be  extended 
by  implication  to  all  necessary  and  proper  means  for  the  accomplish- 


204  UNION   BANK   V.   JACOBS. 

ment  of  the  purposes  of  the  charter.     Now,  what  are  necessary  and 
proper  means ?  ~  Mr.  Story,  as  we  have  seen,  says,  if  the  means  are 

/S  usual  and   appropriate,   the   implication   of  power  arises.  —  Story  on 
Bills,  95. 

Chief  Justice  Marshall,  in  the  case  of  McCullock  us.  the  State  of 
Maryland,  4th  Wheaton  413,  says  :  "  But  the  argument  on  which  most 
reliance  is  placed,  is  drawn  from  the  peculiar  language  of  this  clause  of 
the  constitution.  Congress  is  not  empowered  by  it  to  make  all  laws 
which  may  have  relation  to  the  powers  conferred  on  the  government, 
but  such  only  as  may  be  necessary  and  proper  for  carrying  them  into 
execution.  The  word  '  necessary '  is  considered  as  controlling  the  whole 
sentence,  and  as  limiting  the  right  to  pass  laws  for  the  execution  of  the 
granted  powers,  to  such  as  are  indispensable,  and  without  which  the 

/  power  would  be  nugatory.  That  it  excludes  the  choice  of  means,  and 
leaves  Congress,  in  each  case,  that  only  which  is  most  direct  and  simple. 
Is  It  true,  that  this  is  the  sense  in  which  the  word  '  necessary '  is  alwa}'s 
used  ?  Does  it  always  import  an  absolute  physical  necessit}*,  so  strong 
that  one  thing  to  which  another  may  be  termed  necessary  cannot  exist 
without  that  other?  We  think  it  does  not.  If  reference  be  had  to  its 
use  in  the  common  affairs  of  the  world,  or  in  approved  authors,  we  find 
that  it  frequently  imports  no  more  than  that  one  thing  is  convenient  or 
useful  or  essential  to  another.  To  employ  the  means  necessary  to  an 
end,  is  generally  understood  as  employing  an}-  means  calculated  to  pro- 
duce the  end,  and  not  as  being  confined  to  those  single  means,  without 
which  the  end  would  be  entirely  unattainable.  Such  is  the  character 
of  the  human  mind,  that  no  word  conveys  to  it,  in  all  situations,  one 
single,  definite  idea,  and  nothing  is  more  common  than  to  use  words  in 
a  figurative  sense.  Almost  all  compositions  contain  words  which,  taken 
in  their  rigorous  sense,  would  convey  a  meaning  different  from  that 
which  is  obviously  intended.  It  is  essential  to  just  construction,  that 
many  words,  which  import  something  excessive,  should  be  understood 
in  a  more  mitigated  sense  —  in  that  sense  which  common  usage  justifies. 
The  word  '  necessary  '  is  of  this  description.  It  has  no  fixed  character 
peculiar  to  itself.  It  admits  of  all  degrees  of  comparison,  and  is  often 
connected  with  other  words,  which  increase  or  diminish  the  impression 
the  mind  receives  of  the  urgency  it  imports.  A  thing  may  be  neces- 
san',  very  necessary,  absolutely  or  indispensably  necessary.  To  no 
mind  would  the  same  idea  be  conveyed  by  these  several  phases."  In 
conclusion  upon  this  subject,  he  saj^s,  page  421,  same  case :  "  We 
admit,  as  all  must  admit,  that  the  powers  of  the  government  are  lim- 
ited, and  that  its  limits  are  not  to  be  transcended.  But  we  think  the 
sound  construction  of  the  constitution  must  allow  to  the  National 
Legislature  that  discretion,  with  respect  to  the  means  by  which  the 
powers  it  confers  are  to  be  carried  into  execution,  which  will  enable 
that  body  to  perform  the  high  duties  assigned  to  it,  in  the  manner  most 
beneficial  to  the  people.  Let  the  end  be  legitimate,  let  it  be  within  the 
scope  of  the  constitution,  and  all  the  means  which  are  appropriate, 


UNION   BANK   V.    JACOBS.  205 

which  are  plainly  adapted  to  that  end,  which  are  not  prohibited,  but 
consist  with  the  letter  and  spirit  of  the  constitution,  are  constitutional.'* 

Now,  if  this  be  true  doctrine  in  relation  to  the  constitution  of  the 
United  States,  surely  it  will  not  be  contended  that  a  more  stringent 
rule  will  be  applied  in  the  construction  of  the  powers  of  a  corporation, 
than  is  applied  in  the  construction  of  the  powers  of  Congress  under 
the  constitution  of  the  United  States. 

To  apply  these  principles  as  established  by  the  authorities  cited,  to 
the  case  under  consideration.  The  Hiwassee  Rail  Road  Company  is 
chartered  to  construct  a  rail  road,  a  thing  of  itself  necessarily  involv- 
ing a  heavy  expenditure  of  mone}' ;  but  in  addition  thereto,  it  is  em- 
powered to  sue  and  be  sued,  to  acquire  and  hold,  sell,  lease  and  convey 
estates  real,  personal  and  mixed,  which  necessarily  involves  the  power 
of  making  contracts  for  the  same.  How  shall  these  contracts  be  made, 
both  for  the  construction  of  the  road  and  the  purchase  of  the  property? 
It  is  argued,  that  the  capital  stock  of  the  company  is  the  only  means 
provided  for  the  payment,  and  that  no  other  can  be  resorted  to  for  that 
purpose  ;  or.  in  other  words,  thai,  if.  must,  pay  nash  for  every  contract, 
for  that  no  power  is  given  by  which  it  may  contract  uponjjme  ;  for  if  it 
may  create  a  debt,  of  necessary  consequence,  it  may  create  written  evi- 
dences of  that  debt,  and  these  may  be  either  promissory  notes  or  bills 
of  exchange.  It  is  true,  that  the  capital  stock  of  the  company  is  the 
source  from  whence  an  ultimate  payment  of  the  debts  of  the  company 
must  be  made,  but  to  bold  that  a  sufficient  amount  of  this  stock  must al- 
ways  be  onjiand^to  pay  immediately  for  every_contract  made,  would  be_  / 
destructive  of  the  operations  of  the  compan}'.  By  the  provisions  of  the 
charter,  not  more  than  one  fourth  of  the  stock  shall  be  called  for  in  any 
one  year,  and  this  upon  thirty  da\-s  notice  ;  and  if,  within  thirt}1  daj's 
after  such  notice,  the  amount  called  for  be  not  paid,  the  company  is 
authorized  to  take  steps  against  the  delinquent  stockholders,  to  enforce 
payment.  Now,  it  is  obvious  that  it  never  was  intended  that  all  the 
stock  should  be  paid  in  before  the  company  ^omrj^nf^^^rn^nrtfi. 
The  early  completion  of  the  road  was  a  desirable  object  for  commercial 
purposes,  and  can  it  be  pretended,  that  the  expenditures  of  the  com- 
pany were  to  be  limited  and  restricted  to  the  amount  of  capital  actually  s 
paid  in  by  the  stockholders,  and  that  under  no  circumstances  were  the  ^ 
company  to  exceed  them?  If,  upon  a  failure  of  the  means  on  hand, 
the  stockholders  should  neglect  to  pay  upon  a  proper  call,  are  the 
works  to  be  suspended  until  such  time  as  payments  could  be  enforced? 
Are  the  persons  who  may  have  done  work  for  it,  and  for  which  they 
have  not  been  paid,  to  wait  the  slow  process  of  the  law  before  they  can 
receive  satisfaction?  And  shall  the  compan}'  not  be  permitted  to  use 
its  credit  in  such  emergency?  It  is  so  argued  for  the  defendant.  This 
construction  of  the  charter  would  be  ruinous  in  its  consequences.  The 
company  might  be  compelled  to  suspend  all  operations  at  a  time  when 
great  loss  would  result  from  deterioration  to  unfinished  work,  and  be 
greatly  injured  also  in  its  credit. 


206  UNION   BANK   V.   JACOBS. 

The  restriction  contended  for  is  too  refined  and  technical.  It  might 
have  suited  the  da}*8  of  the  Year  Books,  when  it  was  held  that  a  corpo- 
ration could  contract  for  nothing  except  under  its  corporate  .seal ;  but 
it  is  strange  that  it  should  be  urged  at  this  da}1  of  enlightened  jurispru- 
dence, when  the  substance  of  things  is  looked  to  rather  than  forms. 
A  corporation  is,  in  the  estimation  of  law,  a  body  created  for  special 
purposes,  and  there  is  no  good  reason  why  it  should  not,  in  the  execu- 
tion of  these  purposes,  resort  to  an}*  means  that  would  be  necessary 
and  proper  for  an  individual  in  executing  the  same,  unless  it  be  pro- 
hibited by  the  terms  of  its  charter,  or  some  public  law,  from  so 
doing. 

There  is  no  principle  which  prevents  a  corporation  contracting 
debts  within  the  scope  of  its  action  ;  and,  as  has  been  observed,  if  it 
may  contract  a  debt,  it  necessarily  may  make  provision  for  its  pay- 
ment, by  drawing,  or  endorsing,  or  accepting  notes  or  bills.  It  is 
not  pretended  that  this  power  extends  to  the  drawing,  endorsing  or 
accepting  bills  or  notes  generall}",  and  disconnected  from  the  purposes 
for  which  the  corporation  was  created. 

The  corporation,  in  the  present  case,  was  indebted  to  one  of  its  con- 
tractors for  work  done  upon  the  road,  for  the  payment  of  which,  the 
note  in  question  was  drawn.  This,  upon  principle  and  authority,  was 
a  usual  and  appropriate  means  for  accomplishing  the  object  and  pur- 
jToaea  of  the  charter,  viz ;  the  construction  of  the  road.  Not  only  do 
all  the  elementary  writers  sustain  this  view  of  the  subject,  but  as  we 
have  seen,  there  are  three  adjudicated  cases  in  courts  of  high  authority 
directly  in  its  favor.  The  case  of  Mum  vs.  Commission  Company,  16th 
John.  52;  the  case  of  Mott  vs.  Hicks.  1st  Cowen,  513;  and  the  case 
of  Hayward  vs.  the  Pilgrim  Societ}",  21st  Pickering  270. 

There  has  not  been  produced  a  single  case  to  the  contrary.  The 
cases  cited  relied  upon  are  decided  upon  different  grounds  entirely. 
The  case  of  Broughton,  and  others  vs.  the  Company  and  Proprietors 
of  the  Manchester  and  Salford  Water  Works,  3d  Barnwell  &  Alderson 
1,  reported  in  the  English  Common  Law  reports  215,  decides  nothing 
more  than  that  a  corporation,  not  established  for  trading  purposes,  can- 
not be  acceptors  of  a  bill  of  exchange,  pa3-able  at  a  less  period  than 
six  months  from  the  date,  because  such  a  case  falls  within  the  pro- 
visions of  the  several  acts  passed  for  the  protection  of  the  Bank  of 
England,  by  which  it  is  enacted,  that  it  shall  not  be  lawful  for  an}* 
body  corporate  to  borrow,  owe  or  take  up  any  money  upon  their  bills 
or  notes  payable  at  demand,  or  at  any  less  time  than  six  months  from 
the  borrowing  thereof.  It  is  true  that  Baily,  J.,  in  his  opinion,  says  : 
"  There  being  no  power  expressly  given  to  the  corporation  to  make 
promissory  notes  or  become  parties  to  bills  of  exchange,  I  should  doubt 
ver}'  much  (even  if  the  Bank  acts  were  entirety  out  of  the  question) 
whether  such  corporation  would  have  any  power  to  bind  itself  for  pur- 
poses foreign  to  those  for  which  it  was  originally  established ;  and 
Best,  J.,  in  his  opinion,  says :  "  I  am  also  of  opinion,  that  this  action 


UNION  BANK   V.   JACOBS.  207 

is  not  maintainable,  because,  this  case  comes  within  that  rule  of  law 
by  which  corporations  are  prevented  from  binding  themselves  by  con- 
tract not  under  seal.  When  a  company,  like  the  Bank  of  England,  or 
East  India  Compan}',  are  incorporated  for  the  purposes  of  trade,  it 
seems  to  result  from  the  very  object  of  their  being  so  incorporated, 
that  they  should  have  power  to  accept  bills  or  issue  promissory  notes  ; 
it  would  be  impossible  for  either  of  these  companies  to  go  on  without 
accepting  bills.  In  the  case  of  Stark  vs.  the  Highgate  Arch  Way  Com- 
pany, 5th  Taunt.  792,  the  court  of  common  pleas  seemed  to  think,  that, 
unless  express  authorit}-  was  given  by  the  act  establishing  the  company 
to  make  promissory  notes  eo  nomine,  a  corporation  could  not  bind  it- 
self except  by  deed.  Now,  there  is  nothing  in  the  act  of  Parliament 
establishing  this  company,  which  authorizes  them  to  bind  themselves 
except  by  deed.*'  So,  the  authority  of  this  case  for  the  defendant, 
rests  solely  upon  the  dubitatur  of  Baily  and  the  opinion  of  Best,  that 
the  company  could  only  bind  itself  by  deed.  How  much,  under  these 
circumstances,  it  is  worth,  need  not  be  said. 

The  case  of  the  People  of  the  State  of  New  York  vs.  the  Utica  In- 
surance Company,  15th  Johnson  358,  decides,  "  that,  since  the  act  to 
restrain  unincorporated  banking  associations,  (April  llth,  1804,  re- 
enacted  April  6th,  1813,)  the  right  or  privilege  of  carrying  on  banking 
operations  by  an  association  or  compan}",  is  a  franchise  which  can  only 
be  exercised  under  a  legislative  grant ;  that  a  corporation  has  no  other 
powers  than  such  as  are  specifically  granted  by  the  act  of  incorpora- 
tion, or  are  necessary  for  the  purposes  of  canying  into  effect  the  powers 
expressly  granted  ;  and  that  the  act  to  incorporate  the  Utica  Insurance 
company  does  not  authorize  the  company  to  institute  a  bank,  issue  bills, 
discount  notes,  and  receive  deposits.  Such  powers  not  being  expressly 
granted  by  the  Legislature,  and  not  being  within  their  intention,  as 
collected  from  the  act  of  incorporation,  and  that  the  compan}-  having 
assumed  and  exercised  these  powers,  they  were  held  to  have  usurped  a 
franchise. 

It  is  scarcely  necessary  to  enter  into  an  investigation,  to  show  the 
ground  upon  which  this  decision  rests.  .Banking  privileges,  by  an  ^- 
association  or  companj",  in  New  York,  rest  upon  express  grant.^ 
There  was  no  such  grant  to  the  Utica  Insurance  Company,  and  ah 
exercise  of  the  power  was  not  necessary  and  proper  to  the  perform- 
ance of  the  purposes  for  which  it  is  created,  but  wholly  foreign 
thereto. 

In  the  case  of  the  New  York  Firemen  Insurance  compan}-  vs.  Ely,  2d 
Cowan,  678,  it  is  held,  that  a  company  incorporated  for  the  purpose  of 
insurance,  and  forbidden  to  earn-  on  any  other  trade  or  business,  also 
forbidden  to  exercise  banking  powers,  with  a  clause  in  the  act  incorpo- 
rating them,  enumerating  the  kind  of  securities  upon  which  they  may 
loan  mone}-,  but  not  including  promissory  notes  in  such  enumeration, 
have  no  power  to  loan  moneys  upon  promissory  notes  or  any  securities 
other  than  those  especially  enumerated.  This  company  being  incorpo- 


208  UNION   BANK   V.   JACOBS. 

rated  for  the  purpose  of  insurance  only,  the  discounting  of  promissory 
notes  would  have  been  foreign  to  the  purpose  of  its  creation  ;  but,  in 
addition  thereto  it  is  expressly  prohibited  from  carrying  on  an}*  other 
trade  or  business,  or  exercising  banking  powers,  and  the  kind  of  securi- 
ties upon  which  it  may  loan  money  are  especially  enumerated,  promis- 
sory notes  being  excluded,  it  is  a  well  settled  maxim  of  the  law,  the 
expressio  unius  exclusio  est  alterius  ;  —  then,  for  many  reasons,  this 
company  had  no  power  under  its  charter  to  discount  notes.  It  is  not 
only  not  given  expressly  or  by  implication,  but  upon  ever}*  principle  of 
legal  construction,  is  withheld. 

In  the  case  of  the  Life  and  Fire  Insurance  Company  vs.  the  Mechan- 
ics Fire  Insurance  Company,  of  New  York,  7th  Wendell  31,  it  is  held, 
that  "  a  corporation  authorized  to  lend  money  only  on  bond  and  mort- 
gage, cannot  recover  money  lent  by  the  corporation,  except  a  bond  and 
mortgage  be  taken  for  its  re-pa3'ment  ;  ever}'  other  security,  as  well  as 
the  contract  itself,  is  void,  and  not  the  basis  of  action.  The  reason 
for  this  decision  is  obvious  ;  bond  and  mortgage  being  specified  as  the 
securities,  upon  which  the  company  might  lend  money,  all  others  were 
considered  as  excluded,  upon  the  principle  mentioned  above,  expre&sio 
umifs^exclusio  est  altgzius. 

These  are  all  the  cases  relied  upon  by  the  defendant  for  the  support 
of  the  position  assumed  by  him  ;  we  are  satisfied  that  the}1  have  no 
applicability  to  the  question,  and  are  not  authority  in  this  case. 

We  are  then  of  opinion,  (to  use  the  words  of  Chief  Justice  Marshall, 
in  the  case  of  McCullock  vs.  the  State  of  Maryland,)  that  the  end  pro- 
posed by  the  Hiwassee  Rail  Road  Company,  in  ^x^cjrtin£3be~Pote~ih 
question,  was  legitimate,  and  within  the  scope  of  its  charter  ;  that  as  a 
means  it  was  appropriate,  and  plainly  adapted  to  that  end,  which  is 
not  prohibited,  but  consistent  with  the  letter  and  spirit  of  the  charter 
and  therefore  not  void,  but  binding  and  effectual  upon  the  company 
and  the  endorsers. 

Let  the  judgment  of  the  circuit  court  be  reversed,  and  the  case  be 
remanded  for  a  new  trial.1 

1  The  reporter  has  printed,  as  an  appendix  to  this  case  (pp.  528-532),  an  opinion 
given  by  Ex-Chancellor  Kent,  of  New  York,  as  counsel.  He  came  to  the  conclusion 
that  the  company  had  not  power  to  borrow  money  ;  and  that  the  notes,  being  illegal 
and  impliedly  prohibited,  could  not  be  enforced  against  any  of  the  parties  thereto. 

After  stating  the  substance  of  the  charter  provisions,  Chancellor  Kent  said  (inter 
alia)  : 

Here  we  have  the  delineation  of  the  powers  of  the  company,  and  it  cannot  but 
strike  any  attentive  reader  of  the  act,  that  those  powers  are  very  specially  designated 
and  confined  within  strict  and  narrow  limits.  The  road  is  to  be  made  out  of  capital  or 
funds  jg,|ged_by  subscriptions,  and  to  be  called  for  from  time  to  time.  underj-easonabTe 
and  guarded  checks^  fronvtheT  subscribers  or  stockholders.  The  power  of  acquiring 
and  making  the  road,  the  extent  ot  the  expenditures  toHBe^bestowed  in  making  it,  the 
source  from  which  the  moneys  requisite  for  the  work  are  to  be  procured,  and  the  man- 
ner in  which  they  are  to  be  raised,  are  all  declared  in  the  charter  with  a  certainty  and 
precision  that  cannot  be  mistaken  ;  and  here  we  may  confidently  conclude  that  the 
charter  contains  no  power  in  the  president  and  directors  to  borrow  money  upon  loan, 


NORRIS  V.   STAPS.  .  209 

SECTION  V. 

Power  to  make  By-Laws. 

HOBAKT,  C.  J.  [?],  IN  NORRIS  v.  STAPS. 

1614-1625    [?].     Hobart's  Reports,  p.  211  a. 

Now  I  am  of  opinion,  that  though  power  to  make  laws  is  given  by 
special  clause  in  all  incorporations,  yet  it  is  needless  ;  for  I  hold  it  to 
be  included »  byLJaw^in^  the  very  act  of  incorporating,  as  is  also  the 
power  to  sue,  to  purchase,  and  the  like.  For,  as  reason  is  given  to  the 
natural  bod)'  for  thtTgoverning  of  it,  so  the  body  corporate  must  have 
laws,  as  a  politic  reason  to  govern  it;  but  those  laws  must  ever  be 
subject  to  the  general  law  of  the  realm,  as  subordinate  to  it.  And 
therefore,  though  there  be  no  proviso  for  that  purpose,  the  law  sup- 
plies it. 

or  to  give  their  promissory  notes  to  the  lender  of  money,  for  the  purpose  of  making 
the  road  and  carrying  into  effect  the  object  of  the  charter.  The  mode  of  raising  the 
funds,  and  the  limitation  to  the  amount  of  those  funds,  are  specifically  prescribed, 
and  all  the  other  modes  are  necessarily  excluded. 

That  it  is  an  established  and  deemed  a  salutary  rule  in  the  construction  of  corpo- 
rate powers,  where  the  charter  is  for  special  purposes,  and  the  powers  and  the  man- 
ner of  executing  them  specially  designated,  that  no  other  powers  and  no  other  mode 
of  exercising  the  powers  granted,  can  be  deemed  lawfully  to  exist,  I  would  refer  to 
the  English  and  American  cases. —  ED. 


14 


210  HOENE   V.   IVY. 


CHAPTER  VI. 
MODE  OF  CONTRACTING  AND  OF  APPOINTING  AGENTS. 


HORNE   v.   IVY. 
20  Car.  2.     1  Modern,} 8. 

TRESPASS  for  taking  away  a  ship.  The  defendant  justifies  as  servant 
under  the  patent  whereby  The  Canary  Company  is  incorporated,  and 
whereby  it  is  granted,  "That  none  but  such  and  such  should  trade 
thither,  on  pain  of  forfeiting  their  ships  and  goods,  &c."  and  says,  that 
the  defendant  did  trade  thither,  &c.  The  defendant  demurs. 

POLLEXFEN /or  the  plaintiff  contended,  that  the  defendant  ought  to 
have  shewn  the  deed  whereby  he  was  authorized  by  the  Company  to 
seize  the  goods : *  though  he  agreed,  that  for  ordinary  employments 
and  services  a  corporation  ma}-  appoint  a  servant  without  deed,  as  a 
cook,  a  butler,  &c.2  A  corporation  cannot  license  a  stranger  to  fell 
trees  without  deed.8  Nor  can  they  make  a  disseisor  without  deed, 
nor  deliver  a  letter  of  attorney  without  deed.4  SECONDLY,  The  plea  is 
double ;  for  the  defendant  alledges  two  causes  of  a  breach  of  their 
charter,  viz.  their  taking  in  wines  at  the  Canaries,  and  importing  them 
here  ;  which  is  double.  Then  there  is  a  clause  that  gives  the  forfeiture 
of  goods  and  imprisonment,  which  cannot  be  by  patent.6  This  patent 
1  take  also  to  be  contrary  to  some  acts  of  parliament,  viz.  2.  Edw.  3. 
c.  1.  2.  Edw.  3.  c.  2.  2.  Rich.  2.  c.  1.  11.  Rich.  2.  c.  2  ;  and  these 
statutes  the  king  cannot  dispense  withal  by  a  non  obstante. 

TWISDEN,  Justice.  For  the  first  point,  I  think,  they  cannot  seize 
without  deed,  no  more  than  they  can  enter  for  a  condition  broken  with- 
out deed. 

KELYNGE,  Chief  Justice.  We  desire  to  be  satisfied,  Whether  this  is 
a  monopoly  or  not?  —  It  was  ordered  to  be  argued  again.6 

1  26,  Hen.  6.  pi.  8.     14  Edw.  4.  pi.  8.     Bro.  "  Corporation  "  59. 

2  Plowd.  95. 

*  12.  Hen.  4.  pi.  17. 

*  9.  Edw.  4.  pi.  59.     Bro.  "Corporation,"  24.  34.     14.  Hen.  7.  pi.  1.     7.  Hen.  7. 
pi!  9.     1.  Roll.  Abr. 

6  8.  Co.  125.     Noy,  123. 

6  It  appears  in  Keble  and  Ventris,  that  judgment  was  given  in  this  case  for  the 
plaintiff,  on  the  first  objection,  because  the  defendant  justified  by  the  command  of  a 
corporation,  without  shewing  that  his  authority  to  seize  the  ship  was  by  a  deed ;  and 
8.  C.  Siderfin  says,  that  the  Court  also  held  the  bar  bad  in  substance,  because  the 
king  by  his  patent  cannot  create  a  forfeiture  for  the  doing  those  things  which  his 
patent  prohibits.  See  3.  Peer.  Wms.  424.  Hardres,  55.  Skinner,  135,  224.  8.  Co. 
125.  Palmer,  5.  3.  Lev.  353.  1.  Salk.  32.  5.  Com.  Dig.  "  Trade,"  (B.).  I.  Burr. 
526.  1.  Term  Kep.  118. 


BANK   OF   UNITED   STATES   V.   DANDKIDGE.  211 


MARSHALL,  C.  J.,  ra  BANK  OF  U.  S.  v.  DANDRIDGE. 

1827.     12  Wfieaton,  64. 

[IN  this  case  the  majority  of  the  Court  held,  that  the  acceptance  of  a 
cashier's  bond  by  the  board  of  directors  of  a  bank  may  be  proved  with- 
out the  production  of  a  written  record ;  and  that,  although  there  was 
no  recorded  vote  of  acceptance,  the  acceptance  might  be  proved  by 
evidence  of  the  facts  that  the  person  acted  as  cashier  and  was  recog- 
nized as  such  b}*  the  directors,  and  that  the  bond  was  required  to  be 
given  as  a  condition  precedent  to  his  so  acting,  and  was  actually  found 
among  the  corporate  documents. 

MARSHALL  C.  J.,  delivered  a  dissenting  opinion,  from  which  the 
following  extracts  have  been  made.] 

MARSHALL  C.  J. 

The  plaintiff  is  a  corporation  aggregate ;  a  being  created  by  law, 
itself  impersonal,  though  composed  of  man}'  individuals ;  these  indi- 
viduals change  at  will ;  and,  even  while  members  of  the  corporation, 
can,  in  virtue  of  such  membership,  perform  no  corporate  act,  but  are 
responsible  in  their  natural  capacities,  both  while  members  of  the  corpo- 
ration and  after  the}-  cease  to  be  so,  for  every  thing  the}'  do,  whether  in  the 
name  of  the  corporation,  or  otherwise.  The  corporation  being  one  entire 
impersonal  entity,  distinct  from  the  individuals  who  compose  it,  must 
be  endowed  with  a  mode  of  action  peculiar  to  itself,  which  will  always 
distinguish  its  transactions  from  those  of  its  members.  This  faculty 
must  be  exercised  according  to  its  own  nature. 

Can  such  a  being  speak,  or  act  otherwise  than  in  writing?  Being 
destitute  of  the  natural  organs  of  man,  being  distinct  from  all  its  mem- 
bers, can  it  communicate  its  resolutions,  or  declare  its  will,  without  the 
aid  of  some  adequate  substitute  for  those  organs  ?  If  the  answer  to  this 
question  must  be  in  the  negative,  what  is  that  substitute?  I  can  imagine 
no  other  than  writing.  The  will  to  be  announced  is  the  aggregate  will. 
The  voice  which  utters  it  must  be  the  aggregate  voice.  Human  organs 
belong  onl}-  to  individuals.  The  words  they  utter  are  the  words  of 
individuals.  These  individuals  must  speak  collectivel}-  to  speak  corpo- 
rately,  and  must  use  a  collective  voice.  They  have  no  such  voice,  and 
must  communicate  this  collective  will  in  some  other  mode.  That  other 
mode,  as  it  seems  to  me,  must  be  by  writing. 

A  corporation  will  generally  act  by  its  agents  ;  but  those  agents  have 
no  self-existing  power.  It  must  be  created  by  law,  or  communicated 
by  the  body  itself.  This  can  be  done  only  by  writing. 

If,  then,  corporations  were  novelties,  and  we  were  required  now  to 
devise  the  means  by  which  they  should  transact  their  affairs,  or  communi- 
cate their  will,  we  should,  I  think,  from  a  consideration  of  their  nature, 
of  their  capacities  and  disabilities,  be  compelled  to  say,  that  where  other 


212  BANK   OF  UNITED   STATES   V.   DANDKIDGE. 

means  were  not  provided  by  statute,  such  will  must  be  expressed  in 
writing. 

But  they  are  not  novelties.  They  are  institutions  of  very  ancient 
date ;  and  the  books  abound  with  cases  in  which  their  character  and 
their  means  of  action  have  been  thoroughly  investigated.  In  Brooke's 
Abridgment  (title  Corporation),  we  find  man}'  cases,  cited  chiefly  from 
the  Year  Books,  from  which  the  general  principle  is  to  be  extracted, 
that  a  corporation  aggregate  can  neither  give  nor  receive,  nor  do  any- 
thing of  importance,  without  deed.  Lord  Coke,  in  his  commentary 
on  Littleton  (66  b.),  says:  "But  no  corporation  aggregate  of  many 
persons  capable  can  do  homage."  "And  the  reason  is,  because 
homage  must  be  done  in  person,  and  a  corporation  aggregate  of  many 
cannot  appear  in  person  ;  for,  albeit,  the  bodies  natural,  whereupon  the 
body  politic  consists,  may  be  seen,  yet  the  body  politic  or  corporate,  itself, 
cannot  be  seen,  nor  do  any  act,  but  by  attorne}"."  So,  too,  a  corpora- 
tion is  incapable  of  attorning  otherwise  than  b}*  deed  (6  Co.  386),  or  of 
surrendering  a  lease  for  years  (10  Co.  676),  or  of  presenting  a  clerk  to 
a  living  (Br.  Corp.  83),  or  of  appointing  a  person  to  seize  forfeited 
goods  (I  Vent.  47),  or  agreeing  to  a  disseisin  to  their  use  (Br.  Corp.  34). 
These  incapacities  are  founded  on  the  impersonal  character  of  a  corpo- 
ration aggregate,  and  the  principle  must  be  equally  applicable  to  every 
act  of  a  personal  nature. 

Sir  William  Blackstone,  in  his  Commentaries  (v.  1,  p.  475),  enumer- 
ates, among  the  incidents  to  a  corporation,  the  right  "  to  have  a  com- 
mon seal."  "  For,"  he  adds,  "a  corporation  being  an  invisible  bod}*, 
cannot  manifest  its  intention  by  any  personal  act  or  oral  discourse. 
It  therefore  acts  and  speaks  only  by  a  common  seal.  For  though  the 
particular  members  may  express  their  private  consents  to  any  acts,  b}T 
words,  or  signing  their  names,  yet  this  does  not  bind  the  corporation  ; 
it  is  the  fixing  of  the  seal,  and  that  only,  which  unites  the  several  assents 
of  the  individuals  who  compose  the  community,  and  makes  one  joint 
assent  of  the  whole." 

Though  this  general  principle,  that  the  assent  of  a  corporation  can 
appear  only  by  its  seal,  has  been  in  part  overruled,  yet  it  has  been  over- 
ruled so  far  only  as  respects  the  seal.  The  corporate  character  remains 
what  Blackstone  states  it  oo  be.  The  reasons  he  assigns  for  requiring 
their  seal  as  the  evidence  of  their  acts,  are  drawn  from  the  nature  of 
corporations,  and  must  always  exist.  If  the  seal  may  be  exchanged  for 
something  else,  that  something  must  yet  be  of  the  same  character,  must 
be  equall}*  capable  of  "  uniting  the  several  assents  of  the  individuals 
who  compose  the  community,  and  of  making  one  joint  assent  of  the 
whole."  The__declaration  that  a  seal  is  indispensablp,  is  tonally  a 
declaration  of  the  necessity__pf  writing.;  for  the  sole  purpose  of  a  seal 
is  to  give  full  faith  and  crediTT;o~the  writing  to  which  it  is  appended. 
The  seal  in  itself,  not  affixed  to  an  instrument  of  writing,  is  nothing ; 
is  meant  as  nothing,  and  can  operate  nothing.  The  writing  is  the  sub- 
stance, and  the  seal  appropriates  it  to  the  corporation. 


BANK    OF   COLUMBIA   V.    PATTERSON'S   ADMINISTRATOR.          213 

The  English  cases  on  this  subject  are  very  well  summed  up  by  Mr. 
Kyd,  p.  259.  The  result  of  the  whole  appears  to  be,  that  in  England 
the  general  rule  is  that  a  corporation  acts  and  speaks  by  its  common 
seal,  at  least  so  far  as  respects  the  appointment  of  officers,  whose  duties 
and  powers  are  important,  jn  those  transactions  where  the  use  of  the_ 
seal  would  be  unnecessary  and  extremelyjnconvenient,  it  is  frequently 
dispensed  with  ;  but_in_aiLof  -  them^J tiling  writing  is  indispensable. 
In  almost  every  case  which  I  can  imagine,  there  ought  to  be  and  is  a 
record  in  the  corporation  books.  With  respect  to  the  necessity  of 
a  seal,  the  difference  is  certainly  great  between  ancient  and  modern 
times  ;  and  between  corporationswhose  principal  transactions  respected 
land,  and  those  which  are  commercial  in  their  fifaar*"^-  This  distinc- 
ttoiTma}-  and^onghlr^tcrinfluence  the  use  of  the  seal,  but  not  the  use  of 
writing.  The  inability  of  a  corporation  aggregate  to  speak  or  act  other- 
wise than  by  writing,  is  constitutional,  and  must  be  immutable,  unless 
it  be  endowed  by  the  legislature  with  other  qualities  than  belong  to  the 
corporate  character.  The  English  cases,  so  far  as  I  have  had  an  oppor- 
tunity  of  examining  them,  concur  in  the  principle  that  a  corporation 
aggregate  can  act  only  by  writing. 

When  a  being  is  created  without  the  organs  of  speech,  and  endowed 
only  with  the  faculty  of  communicating  its  will  by  writing,  we  need  not 
look  in  the  laws  given  by  its  creator  for  a  prohibition  to  speak  or  a  man- 
date to  write.  These  are  organic  laws  which  it  is  compelled  to  observe. 
If  we  find,  in  the  act  of  its  creation,  an  enumeration  of  duties  and  powers 
which  are  to  be  performed  and  exercised  by  writing,  it  is  evidence  that 
the  creator  considered  it  as  certain  that  the  creature  would  write,  and 
that  the  evidence  of  its  conformity  to  the  will  of  the  creator  would  be 
found  in  writing.  It  is  equivalent  to  a  declaration  that  it  shall  act  by 
writing. 


BANK  OF  COLUMBIA  v.  PATTERSON'S  ADMINISTRATOR. 

1813.     7  Cranch,  299.1 

ERROR  to  the  Circuit  Court  for  the  District  of  Columbia. 

Indebitatus  assumpsit  by  Patterson's  Adm'r  against  the  Bank  of 
Columbia.  In  1804,  a  writte'n  agreement  was  made  between  Patterson 
and  a  committee  of  the  directors,  whereby  the  committee  agreed  to  pa}' 
Patterson  for  carpenter  work  which  he  was  to  do  upon  a  new  bank 
building  agreeably  to  a  certain  plan  and  in  a  particular  manner.  In 
1807,  a  sealed  agreement  was  entered  into  between  Patterson  and  a 

1  Statement  abridged.    Part  of  opinion  omitted. — ED. 


214         BANK   OF   COLUMBIA   V.   PATTERSON'S   ADMINISTRATOR. 

committee  of  the  directors,  jinder  their  private  seals.  It  recites,  that 
a  difference  of  opinion  had  arisen  between  Patterson  and  the  com- 
mittee for  building  the  new  banking-house,  as  to  certain  work  extra 
of  an  agreement  made  between  Patterson  and  the  said  committee, 
in  1804,  and  thereto  annexed ;  whereupon  it  was  agreed,  that  all 
the  work  done  b}*  Patterson  should  be  measured  and  valued  by  two 
persons  therein  mentioned,  according  to  certain  rates,  called  in  George- 
town old  prices,  and  the  sum  certified  by  them  should  be  taken  by 
both  parties,  in  their  settlement,  as  the  amount  thereof.  It  was  also 
there 03'  agreed,  that  the  outhouses,  respecting  which  there  had  been 
no  specific  agreement,  should  be  measured  and  valued  by  the  same 
persons  in  the  same  manner. 

Evidence  was  offered  as  to  the  work  done,  including  a  paper  of  par- 
ticulars of  the  work,  certified  by  the  persons  named  in  the  agreement 
of  1807.  It  was  proved  that,  while  the  work  was  going  on,  the  defend- 
ants paid  Patterson  sundry  large  sums  of  inonej*  on  account  thereof. 

Defendants  requested  an  instruction  that  the  plaintiff  was  not  enti- 
tled to  recover,  which  was  refused. 

Defendants  also  asked  an  instruction  —  that  the  plaintiff  could  not 
recover,  unless  he  should  prove  that  the  defendants,  after  the  meas- 
urement and  valuation,  expressly  promised  to  pay  the  amount  thereof 
to  the  plaintiff;  and  that  the  jury  could  not,  from  the  evidence  offered, 
presume  any  such  promise.  This  request  was  also  refused. 

Morsell  and  -ffey,  for  plaintiffs. 

Jones  and  C.  Lee,  for  defendants. 

STORY,  J.  [The  court  overruled  various  objections.  Among  other 
points  they  held:  1st,  that  indebitatus  assumpsit  will  lie  to  recover 
the  stipulated  price  due  on  a  special  contract,  not  under  seal,  where 
the  contract  has  been  complete!}'  executed  ;  and  that  it  is  not  in  such 
case  necessaiy  to  declare  upon  the  special  agreement :  2d,  that  a  prom- 
ise which  would  be  implied  by  law  for  the  extra  work,  against  the  cor- 
poration, was  not  extinguished,  by  operation  of  law,  by  the  provisions 
of  the  sealed  contract  of  1807  ;  the  said  sealed  instrument  merely 
recognizing  an  existing  debt,  and  providing  a  mode  to  ascertain  its 
amount  and  liquidation. 

After  deciding  the  above  and  other  points,  the  opinion  proceeds  as 
follows :] 

The  case  has  thus  been  considered  all  along,  as  though  the  con- 
tracts were  made  between  the  plaintiff's  administrator  and  the  corpora- 
tion, and  indeed  some  points  in  the  argument  have  proceeded  upon 
this  ground.  It  is  ver}'  clear,  however, Jliat  neither  the  first. nor  sec- 
ond ageeemej{ts"~w'eTU  m:ul(iTjy  the  corporation,  but  by  The  committee, 
in  their  own  namcs^  In  consideration  of  the  work  being  done,  the 
committee,  and  not  the  corporation,  personally  and  expressly  agree  to 
pay  the  stipulated  price.  A  question  has  therefore  occurred,  how  far 
the  corporation  were  capable  of  contracting,  except  under  their  corpo- 
rate seal ;  and  if  it  were  capable,  as  no  special  agreement  is  found  in 


BANK   OF   COLUMBIA   V.    PATTERSON'S   ADMINISTRATOR.          215 

the  case,  how  far  the  facts  proved  show  an  express  or  an  implied  con- 
tract on  the  part  of  the  corporation. 

Anciently,  it  seems  to  have  been  held,  that  corporations  could  not  do 
anything  without  deed.  13  H.  8,  12  ;  4  H.  6,  7 ;  7  H.  7,  9. 

Afterwards,  the  rule  seems  to  have  been  relaxed,  and  they  were,  for 
conveniences  sake,  permitted  to  act  in  ordinary  matters  without  deed ; 
as  to  retain  a  servant,  cook,  or  butler.  Plow.  91,  b. ;  2  Sand.  305  ; 
and  gradually  this  relaxation  widened  to  embrace  other  objects.  Bro. 
Corp.  51 ;  1  Salk.  191 ;  3  Lev.  107 ;  Moore,  512.  At  length,  it  seems 
to  have  been  established,  that  though  the}'  could  not  contract  directl}', 
except  under  their  corporate  seal,  yet  they  might  by  mere  vote  or 
other  corporate  act,  not  under  their  corporate  seal,  appoint  an  agent, 
whose  acts  and  contracts,  within  the  scope  of  his  authority,  would  be 
binding  on  the  corporation.  Rex  v.  Bigg,  3  P.  Wins.  419  ;  and  courts 
of  equity,  in  this  respect  seeming  to  follow  the  law,  have  decreed  a 
specific  performance  of  an  agreement  made  by  a  major  part  of  a  cor- 
poration, and  entered  in  the  corporation  books,  although  not  under  the 
corporate  seal,  1  Fonb.  296,  Phil.  ed.  note  (o.)  The  sole  ground  upon 
which  such  an  agreement  can  be  enforced,  must  be  the  capacity  of  the 
corporation  to  make  an  unsealed  contract. 

As  it  is  conceded,  in  the  present  case,  that  the  committee  were  fully 
authorized  to  make  agreements,  there  could  then  be  no  doubt,  that  a 
contract  made  by  them  in  the  name  of  the  corporation,  and  not  in  their 
own  names,  would  have  been  binding  on  the  corporation.  As,  how- 
ever, the  committee  did  not  so  contract,  if  the  principles  of  law  on  this 
subject  stopped  here,  there  would  be  no  remedy  for  the  plaintiff,  except 
against  the  committee. 

The  technical  doctrine,  that  a  corporation  could  not  contract,  except 
under  its  seal,  or,  in  other  words,  could  not  make  a  promise,  if  it  ever 
had  been  fully  settled,  must  have  been  productive  of  great  mischiefs. 
Indeed,  as  soon  as  the  doctrine  was  established  that  its  regularly  ap- 
pointed agent  could  contract  in  their  name  without  seal,  it  was  impos- 
sible to  support  it ;  for  otherwise  the  party  who  trusted  such  contract 
would  be  without  remed}'  against  the  corporation.  Accordingl}',  it 
would  seem  to  be  a  sound  rule  of  law,  that  wherever  a  corporation  is 

^actingwithin   the  SOOpP  of   HIP  IpgifimntP  pnrprtgggj^fjtg    I'nofTtntmn     all 

parol  contracts  made  b}'  its  authorized  agents,  are  express  promises  of 
me  corporation  ;  and  all  duties  imposed  on  them  by  law^jmd  all  bene- 
fits conferred  at  their  request,  raise  implied  projnisesj  for  the  enforce- 
ment  of  which  an  action  may  well  lie^  And  it  seems  to  the  court,  that 
adjudged  cases  fully  support  the  position.  Bank  of  England  v.  Moffat, 
3  Bro.  Ch.  Rep.  262  ;  Rex  v.  Bank  of  England,  Doug.  524,  and  note 
ib. ;  Gray  v.  Portland  Bank,  3  Mass.  Rep.  364  ;  Worcester  Turnpike 
Corporation  v.  Willard,  5  Mass.  Rep.  80 ;  Gilmore  v.  Pope,  5  Mass. 
Rep.  491 ;  Andover  &  Medford  Turnpike  Corporation  v.  Gould,  6 
Mass.  Rep.  40. 

In  the  case  before  the  court,  these  principles   assume   a  peculiar 


216         BANK   OF  COLUMBIA.  V.   PATTERSON'S   ADMINISTRATOR. 

importance.  The  act  incorporating  the  Bank  of  Columbia,  (act  of 
Maryland,  1793,  ch.  30,)  contains  no  express  provision  authorizing  the 
corporation  to  make  contracts.  And  it  follows  that  upon  principles  ol 
the  common  law,  it  might  contract  under  its  corporate  seal.  No  power 
is  directly  given  to  issue  notes  not  under  seal.  The  corporation  is 
made  capable  to  have,  purchase,  receive,  enjoy,  and  retain,  lands, 
tenements,  hereditaments,  goods,  chattels,  and  effects,  of  what  kind, 
nature,  or  qualit}',  soever,  and  the  same  to  sell,  grant,  demise,  alien,  or 
dispose  of  —  and  the  board  of  directors  are  authorized  to  determine 
the  manner  of  doing  business,  and  the  rules  and  forms  to  be  pursued ; 
to  appoint  and  pay  the  various  officers,  and  dispose  of  the  money  or 
credit  of  the  bank,  in  the  common  course  of  banking,  for  the  interest 
and  benefit  of  the  proprietors.  Unless,  therefore,  a  corporation,  not 
expressly  authorized,  ma}'  make  a  promise,  it  might  be  a  serious  ques- 
tion, how  far  the  bank  notes  of  this  bank  were  legally  binding  upon 
the  corporation,  and  how  far  a  depositor  in  the  bank  could  possess  a 
legal  remedy  for  his  property  confided  to  the  good  faith  of  the  corpora- 
tion. In  respect  to  insurance  companies  also,  it  would  be  a  difficult 
question  to  decide,  whether  the  law  would  enable  a  party  to  recover 
back  a  premium,  the  consideration  of  which  had  totally  failed.  JPublic 
policy^  therefore,  as  well  as  law,  in  the  judgment  of  the  conrL.  fully 
jusTTfiesthc  doctrine  which  we  have  findeavorgd__to_pstHl)lish.  Indeed, 
the  opposite  doctrine,  if  it  were  yielded  to,  is  so  purely  technical,  that 
it  could  answer  no  salutary  purpose,  and  would  almost  universally  con- 
travene the  public  convenience.  Where  authorities  do  not  irresistibly 
require  an  acquiescence  in  such  technical  niceties,  the  court  feel  no  dis- 
position to  extend  their  influence. 

Let  us  now  consider  what  is  the  evidence  in  this  case,  from  which 
the  jury  might  legall}'  infer  an  express  or  an  implied  promise  of  the 
corporation.  The  contracts  were  for  the  exclusive  use  and  Jjenefit  of 
the  nnrpnratinn,  and  marte  by  their  agents_Jor_pjflrpj)8e8~authorized  bj*_ 
their  charter.  The  corporation  proceed,  on  the  faith  of^those  con- 
tracts, to  pay  money  from  time  to  time  to  the  plaintiffs  intestate. 
Although,  then,  an  action  might  have  laid  against  the  committee  per- 
sonally, upon  their  express  contract,  yet  as  the  whole  benefit  resulted 
to  the  corporation,  it  seems  to  the  court,  that  from  this  evidence  the 
jury  might  legall}'  infer  that  the  corporation  had  adopted  the  contracts 
of  the  committee,  and  had  voted  to  pay  the  whole  sum  which  should 
become  due  under  the  contracts,  and  that  the  plaintiffs  intestate  had 
accepted  their  engagement.  As  to  the  extra  work  respecting  which 
there  was  no  specific  agreement,  the  evidence  was  yet  more  strong  to 
bind  the  corporation. 

In  every  way  of  considering  the  case,  it  appears  to  the  court  that 
there  was  no  error  in  the  court  below,  and  that  the  judgment  ought  to 
be  affirmed. 


SHERMAN   V.   FITCH.  217 


SHERMAN  v.  FITCH. 

1867.     98  Massachusetts,  59.1 

BILL  IN  EQUITY  by  assignees  of  the  Northampton  Street  Sugar 
Refinery,  an  insolvent  corporation,  praying  for  a  decree  that  a 
recorded  mortgage  of  personal  property,  held  forth  03-  the  respondent 
as  having  been  made  to  him  by  the  corporation,  might  be  declared 
void.  The  mortgage  (dated  Jan.  19,  1865)  purported,  by  the  lan- 
guage of  the  grant,  covenants,  and  condition,  to  be  the  mortgage  of 
the  corporation.  It  was  signed  "George  R.  Sampson,  President  of 
Northampton  Street  Sugar  Refinery.  [Seal.]  " 

After  a  demurrer  had  been  overruled,  the  respondent  filed  an  answer 
putting  in  issue  the  validity  of  the  mortgage  as  a  mortgage  of  the  cor- 
poration. The  case  was  reserved  for  determination  by  the  full  court 
on  agreed  facts,  which  were,  in  part,  as  follows :  — 

For  some  time  prior  to  January  19,  1865,  the  respondent  had  been, 
and  then  was,  selling  agent  of  the  corporation,  which  owed  him  about 
eighteen  thousand  dollars,  to  secure  the  payment  of  which  by  the  cor- 
poration, George  R.  Sampson,  who  was  president  and  a  director,  and 
was  also  manager  of  the  manufacturing  department,  executed  and  de- 
livered to  him  the  instrument  in  question.  At  that  date  there  were 
four  directors  (who  were  the  principal  stockholders) :  Sampson ;  his 
son  ;  a  nephew  ;  and  one  Tappan,  who  was  in  Europe.  That  was  the 
full  number  of  the  board  required  by  the  b3'-laws,  which  also  provided 
that  "the  board  of  directors  shall  manage  and  control  the  business, 
property  and  affairs  of  the  corporation."  The  records  of  the  cor- 
poration contained  no  express  vote  of  either  directors  or  stockholders 
authorizing  the  execution  and  delivery  to  the  respondent  of  a  mortgage 
on  the  corporate  property  ;  but  the  execution  and  deliver}"  of  the  instru- 
ment was  known  to  all  the  directors  except  Tappan,  at  the  time  thereof, 
"  and  was  approved  by  them,  provided  their  neglect  to  make  an}7  ob- 
jection to  the  same  can  be  construed  as  an  approval." 

C.  H.  Drew,  for  complainants  [argument  omitted.] 

D.  P.  Kimball,  for  respondent. 

WELLS,  J.  [The  court  held,  that  the  mortgage  was,  upon  its  face, 
the  mortgage  of  the  corporation,  and  not  the  individual  contract  of 
Sampson.  The  court  then  said  :] 

The  remaining  consideration  relates  to  the  authority  of  Sampson  to 
execute  the  mortgage  in  behalf  of  the  corporation.  It  is  not  necessary 
that  the  authority  should  be  given  by  a  formal  vote.  Such  an  act  by 
the  president  and  general  manager  of  the  business  of  the  corporation, 
-  with  the  knowlgage^KTT^concurrence  of  tfie  (llreuLorsoirjgitb. 'their  sub- 
sequent and  long^  continued  jtcquigscence,  unayj-trnperly  ly»  regarded  as 
the  act  of  the  corporation.  Authority  in  the  agent  of  a  corporation 

1  Only  so  much  of  the  case  is  given  as  relates  to  a  single  point.  —ED. 


218  ROBERTS   V.   DEMING   WOODWORKING   CO. 

ma}*  be  inferred  from  the  conduct  of  its  officers,  or  from  their  knowl- 
edge and  neglect  to  make  objection,  as  well  as  in  the  case  of  indi- 
viduals. Etnmons  v.  Providence  Hat  Manufacturing  Co.  12  Mass. 
237.  Milledge  v.  Boston  Iron  Co.  5  Cush.  158.  Lester  v.  Webb,  1 
Allen,  34.  The  absence  of  one  of  the  directors  in  Europe  could  not 
deprive  the  corporation  of  the  capacity  to  act  and  bind  itself  by  the  acts 
of  the  officers  in  actual  charge  of  its  affairs. 


ROBERTS  v.   P.   A.   DEMING  WOODWORKING  CO. 

1892.     Ill  North  Carolina,  432. 

Tins  was  a  civil  action,  tried  at  the  August  Term,  1892,  of  Buncombe 
Superior  Court,  before  Bynum,  J.,  for  the  value  of  work  and  labor  done 
for  the  defendant  corporation. 

The  defendant  denied  the  debt,  and  resisted  payment  upon  the  fur- 
ther ground  that  the  contract  was  not  in  writing  under  seal  of  the  cor- 
poration, nor  signed  by  any  authorized  officer  thereof,  and  therefore 
void  under  section  683  of  The  Code.1  When  the  plaintiff  rested  his 
case,  the  Court  intimated  he  could  not  recover  on  his  own  showing ; 
the  contract,  being  above  $100,  was  not  according  to  the  formalities 
prescribed  by  The  Code,  s.  683.  Whereupon  the  plaintiff  submitted  to 
a  nonsuit  and  appealed. 

H.  B.  Carter,  for  plaintiff. 

T.  H.  Cobb,  for  defendant. 

CLARK  J.  The  court  ruled  that  the  plaintiff  could  not  recover  in 
any  aspect  of  the  evidence,  because  the  contract  of  the  defendant  corn- 
pan}-  was  not  "  in  writing  and  under  the  seal  of  the  corporation,  or 
signed  b}'  some  officer  of  the  compan}-  duty  authorized,"  as  required  by 
The  Code,  s.  683.  That  section  and  its  purport  was  construed  in  Curtis 
v.  Piedmont  Company,  109  Nor.  Car.  401.  It  is  there  held  that  it 
applies  to  executory  contrac_t^_aiid__rimtect8--eorpui1atioiis  from  enforce- 
menTot  suca  unless  evidenced_inthp  manner  prpsnHbpd  by  the  statute. 
But  the  Court  adds  that  it  does  not  apply  to  cases  where  the  corpora- 
tion has  received  and  availed  itself  of  property  sold  and  actually  deliv- 
ered to  it.  In  such  cases,  the  company  can  be  compelled  to  pay  the 
fair  value  of  such  property.  In  the  present  case  the  claim  is  for  work 
and  labor  done  at  a  specified  rate.  The  contract  not  being  in  writing 
and  signed  (or  sealed),  as  required  by  the  statute,  the  plaintiff  cannot 
force  the  defendant  to  continue  the  contract  as  to  the  unexecuted  part, 

1  "  Every  contract  of  every  corporation,  by  which  a  liability  maybe  incurred  by 
the  company  exceeding  one  hundred  dollars,  shall  be  in  writing,  and  either  under  the 
common  seal  of  the  corporation  or  signed  by  some  officer  of  the  company  authorized 
thereto."  —  Code,  s.  683.  —  ED. 


ROYAL   BANK   OF   LIVERPOOL  V.    GRAND   JUNCTION,  ETC.    CO.      219 

but  the  plaintiff  is  entitled  to  recover  a  fair  value  for  the  labor  already 
performed,  ana  which  the  company  has  accepted,  and  of  which  it  has 
enjoyed  the  benefit._ 

The  defendant  contends,  however,  that  this  action  is  brought  upon 
the  express  contract,  and  that  no  recovery  can  be  had  upon  a  quantum 
meruit,  and  that  if  this  is  not  so,  still  there  was  no  evidence  to  justify 
a  verdict  for  the  value  of  the  services.  The  complaint  is  sufficient  to 
warrant  a  recovery,  either  upon  express  contract  or  for  the  value  of  the 
work  and  labor  done.  Stokes  v.  Taylor,  104  Nor.  Car.  394,  and  cases 
there  cited  ;  Fulps  v.  Mock,  108  Nor.  Car.  601.  No  amendment  was 
necessary,  but  if  desirable,  the  Court,  in  accordance  with  the  present 
S3^stem  of  procedure,  which,  without  undue  neglect  of  form,  favors  a 
trial  upon  the  merits,  could  and  should  have  allowed  an  amendment  of 
the  complaint  after  a  verdict  in  favor  of  the  plaintiff,  if  successful.  The 
Code,  s.  273.  As  to  the  second  objection  raised,  the  contract  price 
agreed  upon  between  the  authorized  agent  of  the  compan}'  and  the 
plaintiff,  while  not  conclusive  (since  the  express  contract  was  perforce 
abandoned),  was  certainly  some  evidence  sufficient  to  go  to  the  jury  as 
to  the  value  of  the  services. 

The  nonsuit  must  be  set  aside,  and  the  case  remanded  for  further 
proceedings  in  accordance  with  this  opinion.1 

PER  CURIAM.  Error. 


FOSTER,  J.,  IN  ROYAL  BANK  OF  LIVERPOOL  v.  GRAND 
JUNCTION   R.  &  D.  CO. 

1868.     100  Massachusetts,  page  445. 

[In  an  action  of  contract  on  corporate  bonds.] 

FOSTER,  J.  A  sealed  instrument  conclusively  imports  a  consideration. 
And  these  bonds,  having  been  duly  executed  and  delivered,  the  holders 
could  have  maintained  an  action  upon  them,  if  their  deliver}-  had  been 
merely  gratuitous,  and  no  value  had  ever  been  given  for  them. 

1  For  a  more  elaborate  opinion  reaching  substantially  the  same  result  upon  a  some- 
what similar  statute,  see  Pixley  v.  W.  P.  R.  R.  33  Calif.  183 ;  and  compare  Foulke  v. 
R.  Co.  51  Calif.  365. 


220  MAYOR,   ETC.   OF   NORWICH   V.   NORFOLK   R.   CO. 


LORD  CAMPBELL,  C.  J.,  IN  MAYOR,  &c.  OF  NORWICH  v. 
NORFOLK  R.  CO. 

1855.     4  Ellis  fr  Blackburn,  p.  443  to  p.  445. 

[!N  an  action  against  a  railway  company  on  a  covenant  under  their 
seal  that,  unless  certain  works  were  completed  within  twelve  months, 
whether  an  Act  of  Parliament  then  agreed  to  be  obtained  should  be 
obtained  or  not,  the  company  would  pay  1000J.  as  liquidated  damages.] 

LORD  CAMPBELL  C.  J.  Although  the  agreement  be  under  seal,  we 
ma}'  examine  to  seejwJiether_there  was  any,  and  what,  consideration 
for  the  contract  to  pay  money,  when  we  are  to  determine  wlietber  the 
c~ontract  was  or  was  not  ultra  vires.  The~mere  circumstance  of  a  cov- 
enant  by  directors  in  the  name  or  the  Company  being  ultra  vires, 
as  between  them  and  the  shareholders,  does  not  necessarily  disentitle 
the  covenantee  to  sue  upon  it.  For  example,  if  the  directors  of  a  rail- 
way company  were  to  enter  into  a  contract  under  the  seal  of  the  Com- 
pany for  the  purchase  of  a  large  quantity  of  iron  rails  and  to  pay  for 
them  at  a  fixed  price,  as  the  vendor  had  reasonable  ground  for  suppos- 
ing that  the  rails  were  wanted  for  the  purpose  of  the  railroad,  it  would 
be  no  defence  to  an  action  for  the  price,  or  for  not  accepting  them, 
that  the  rails  were  illegally  purchased  on  speculation,  to  be  resold  by 
the  directors  for  their  own  profit.  But  suppose  that  the  directors  of  a 
railway  company  should  purchase  a  thousand  gross  of  green  spectacles, 
as  a  speculation,  and  should  put  the  seal  of  the  Company  to  a  deed 
covenanting  to  pa}'  for  these  goods,  here  would  be  a  clear  excess  of 
authority  on  the  part  of  the  directors;  this  excess  of  authority  would 
necessarily  beknown  to  the  covenajiteerand,  he  being  in  pjm  delicto, 
maximwould  apply  potior  est  conditio  possidentis. 


This  would  be  an  illegalconEracTlo  misapply  tEeTunds  of  the  Com- 
pany ;  and  the  illegality  might  be  set  up  as  a  defence.  So,  if,  without 
any  consideration  wbateverjJLhe  directors  of  a  railway  company  were 
tcTput  the  Company's  seal  to  a  deed  covenanting  tojjaxa  mere  stranger 
1000/.,  this  would  he  ultra  vires,  to  the  knowledge  of  the  covenantee, 
and  he  could  not  maintain  an  action  to  recover  the  1000/.  from  the 
funds  of  the  Company  in  fraud  of  the  shareholders.  When  the  excess 
of  authority,  with  tfieTfnowledge  of  both  parties,  is  shewn  by  plea,  this 
joint  violation  of  the  law,  I  apprehend,  is  a  bar  to  the  action. 

It  has  been  contended,  I  am  aware,  that  the  deeds  of  such  companies 
are  to  be  treated  like  the  deeds  of  individuals  or  of  common  partner- 
ships. But  there  seems  to  be  an  essential  distinction  between  them. 
The  individual  ma}'  do  what  he  likes  with  his  own  ;  and  he  may  bind 
himself  by.  a  deed  disposing  of  his  property,  however  capriciously,  and 
without  an}'  consideration,  so  that  no  fraud  has  been  practised  upon 
him.  In  such  a  case,  want  of  consideration  is  immaterial  ;  no  one  is 
injured  ;  and  there  is  no  illegality  to  be  pleaded.  "  To  look  upon 


AMERICAN   NATIONAL   BANK   V.   AMERICAN   WOOD   PAPER   CO.      221 

a  railway  compan}',"  says  Lord  Langdale,  in  Colman  v.  Eastern 
Counties  Railway  Company,  10  Beav.  1,  14,  "in  the  light  of  a  com- 
mon partnership,  and  as  subject  to  no  greater  vigilance  than  common 
partnerships  are,  would,  I  think,  be  greatly  to  mistake  the  functions 
which  they  perform,  and  the  powers  which  they  exercise  of  interference, 
not  only  with  the  public,  but  with  the  private  rights  of  all  individuals 
in  this  realm.  We  are  to  look  to  these  powers  as  given  to  them,  in 
consideration  of  a  benefit  which,  notwithstanding  all  other  sacrifices,  it 
is  to  be  presumed  and  hoped,  on  the  whole,  will  be  obtained  by  the 
public;"  "and  I  am  clearly  of  opinion,  that  the  powers  which  are 
given  by  an  Act  of  Parliament  like  that  now  in  question,  extend  no 
farther  than  is  expressly  stated  in  the  Act,  or  is  necessarily  and  prop- 
erly required  for  carrying  into  effect  the  undertaking  and  works  which 
the  Act  has  expressly  sanctioned."  The  same  learned  Judge,  in 
answer  to  an  argument  that  the  directors  ma}*  appty  the  funds  of  the 
Company  as  they  please,  so  that  their  object  is  to  increase  the  traffic 
upon  the  railway,  and  thereby  to  increase  the  profits  of  the  share- 
holders, exclaims,  "  surely  that  has  no  where  been  stated;  there  is  no 
authority  for  saying  any  thing  of  that  kind."  *  "  Unless  acts  so  done 
can  be  proved  to  be  in  conformity  with  the  powers  given  by  the  stat- 
utes under  which  those  Acts  are  done,  they  furnish  no  authority 
whatever." 

The  equity  reports  abound  with  cases  in  which  injunctions  have  been 
granted  against  the  application  of  the  funds  of  such  companies  to  pur- 
poses not  authorized  by  the  Acts  of  Parliament  creating  them,  although 
professedly  for  the  benefit  of  the  shareholders :  and  I  apprehend  that  a 
contract,  against  the  performance  of  which  an  injunction  would  be 
granted  in  equity,  must  be  considered  illegal  and  void  at  law,  on  proof 
that,  to  the  knowledge  of  both  parties,  it  is  beyond  the  power  of  the 
directors,  and  leads  to  a  misapplication  of  the  funds  of  the  Companj7. 


AMERICAN  NAT.  BANK  v.  AMERICAN  WOOD  PAPER  CO. 

1895.     19  Rhode  Island,  139.2 

DEBT  on  bond.  Certified  from  the  Common  Pleas  Division  on  de- 
murrer to  the  declaration. 

Plaintiff  sues  as  purchaser  and  bearer  of  certain  coupon  bonds,  issued 
by  the  defendant  corporation  under  its  corporate  seal,  pa3~able  to  the 

1  This  citation  is  from  the  judgment  as  reported  in  16  L.  J.  N.  S.  Chancery,  78. 
The  passage  in  the  judgment  as  reported  in  10  Beav.  p.  15,  is  to  the  same  effect,  but 
not  in  the  same  language. 

2  Statements  abridged.    Part  of  opinion  omitted.  —  ED. 


222      AMERICAN   NATIONAL   BANK  V.   AMERICAN  WOOD   PAPER  CO. 

Girard  Life  Insurance,  Annuity  and  Trust  Company,  or  bearer,  or  in 
case  of  registrj'  to  the  registered  owner. 

Richard  B.  Comstock  &  Rathbone  Gardner,  for  plaintiff. 

Arnold  Green  &  James  Tillinghast,  for  defendant. 

STINESS,  J.  The  plaintiff  sues  to  recover  the  principal  and  interest 
due  on  certain  bonds  and  coupons  issued  by  the  defendant  May  1, 
A.  D.  1890,  and  payable  May  1,  1900,  or  sooner  after  five  years.  The 
bonds  are  secured  by  a  mortgage  of  all  the  defendant's  property,  in  the 
State  of  Pennsylvania,  given  to  a  trustee  for  the  bondholders,  in  which 
it  is  provided  that  in  case  of  default  in  the  pa3-ment  of  interest  for  more 
than  six  months,  the  principal  of  said  bonds  shall  be  due  and  pa}-able. 
The  declaration  sets  out  the  bonds  and  mortgage,  profert  of  which  is 
made,  and  alleges  default  in  payment  of  interest  for  more  than  six 
months  after  demand  made  therefor.  The  defendant  demurs  to  the 
declaration,  upon  several  grounds  ;  but  the  two  grounds  pressed  in  the 
argument  are  that  the  bonds  are  not  negotiable  so  as  to  give  the  plain- 
tiff a  right  of  action  in  its  own  name,  and  that  the  terms  of  the  mort- 
gage cannot  be  imported  into  the  bonds  so  as  to  give  a  right  of  action 
for  the  principal  thereof  before  maturity. 

We  think  that  the  bonds  must  be  treated  as  negotiable  securities. 
While  there  has  been  some  diversity  of  opinion  upon  this  subject,  the 
tendency  of  recent  decisions  and  the  weight  of  authority  and  reason 
seem  now  to  be  in  favor  of  negotiability.  At  first,  before  such  bonds 
had  become  common,  courts  naturall}'  held  that  the}-  lacked  the  tech- 
nical and  established  characteristics  of  negotiable  instruments.  Thus, 
in  Crouch  v.  The  Credit  Fonder,  L.  R.  8  Q.  B.  374  (1873),  it  was 
held  that  the  contract  embodied  in  similar  bonds  prevented  them  from 
being  promissory  notes,  even  if  they  had  been  without  a  seal,  and  that 
the  custom  to  treat  them  as  negotiable,  being  of  recent  origin,  could  not 
attach  as  incident  to  a  contract  contrary  to  the  general  law.  But  in 
Goodwin  v.  Robarts,  L.  R.  10  Exch.  337  (1875),  the  court,  by  Cock- 
burn-,  C.  J.,  does  not  concur  in  thinking  fhe  latter  ground  conclusive. 
In  the  recent  case  Venables  v.  Baring,  L.  R.  3  Ch.  Div.  527  (1892), 
American  railroad  bonds,  upon  the  evidence  of  an  American  law}*er  as 
to  their  negotiability  in  this  country,  were  held  to  have  acquired  in 
England,  in  the  city  of  London,  among  English  merchants,  the  char- 
acter of  negotiability.  Notwithstanding  the  limitations  of  this  decision 
we  think  it  may  be  taken  as  practically  settling  the  rule  in  England. 
See  also  In  re  Imperial  Land  Co.,  L.  R.  11  Eq.  Cas.  478.  In  this 
country  the  decisions  have  been  quite  explicit.  The  principle  on  which 
they  rest  was  well  stated  by  Mr.  Justice  Grier,  in  Mercer  County  v. 
HacJcet,  1  Wall.  83  (1863),  as  follows : 

"This  species  of  bonds  is  a  modern  invention,  intended  to  pass  by 
manual  delivery  and  to  have  the  qualities  of  negotiable  paper ;  and 
their  value  depends  mainty  upon  this  character.  ^Being  issued  by  States 
*wfl  corporations  they  are  necessarily jindfij-scal — Bjitjhereis  nothing 
immoral  or  contrary  to  good  policy  in  making  them  negotiable/if  the 


AMERICAN   NATIONAL   BANK   V.  AMERICAN   WOOD   PAPER   CO.      223 

necessity  of  commerce  require  that  they  should  be  so.  A  mere  tech- 
nical dogma  of  the  courts  of  common  law  cannot  prohibit  the  commer- 
cial world  from  inventing  or  using  any  species  of  security  not  known  in 
the  last  century.  Usage  of  trade  and  commerce  are  acknowledged  by 
courts  as  part  of  the  common  law,  although  they  may  have  been  un- 
known to  Bracton  or  Blackstone.  And  this  malleability  to  suit  the 
necessities  and  usages  of  the  mercantile  and  commercial  world  is  one 
of  the  most  valuable  characteristics  of  the  common  law.  When  a  cor- 
poration covenants  to  pay  to  bearer  and  gives  a  bond  with  negotiable 
qualities,  and  by  this  means  obtains  funds  for  the  accomplishment  oi 
the  useful  enterprises  of  the  day,  it  cannot  be  allowed  to  evade  the  pay- 
ment  by  parading  some  obsolete  Judicial  decision  that  a  bond>Jor_SQme^ 
"Technical  reason,  cannot  be  made  payable  to  bearer.  That  these  secu- 
rities are  treated  as  negotiable  by  the  commercial  usages  of  the  whole 
civilized  world  and  have  received  the  sanctions  of  judicial  recognition, 
not  only  in  this  court  (White  v.  Vermont  R.  R.,  21  How.  575),  but  of 
nearly  eveiy  State  in  the  Union,  is  well  known  and  admitted." 

After  this  strong  statement  it  is  needless  to  sa,y  more,  except  to  refer 
to  a  few  cases  to  the  same  effect.  Kneeland  v.  Lawrence,  140  U.  S. 
209 ;  Chicago  Railway  Co.  v.  Merchants'  Bank,  136  U.  S.  268 ; 
DeHass  v.  Roberts,  59  Fed.  Rep.  853  ;  Reid  v.  Bank  of  Mobile,  70 
Ala.  199  ;  National  Exchange  Sank  v.  Hartford,  Prov.  &  Fishkill 
R.  R.  Co.,  8  R.  I.  375  ;  1  Randolph  on  Commercial  Paper,  §  74,  note  1, 
and  cases  cited.  It  is  true  that  some  States  have  statutes  which  declare 
bonds  of  this  kind  to  be  negotiable,  (see  2  Amer.  &  Eng.  Ency.  of  Law, 
319),  and  the  point  is  taken  that  it  is  not  so  in  this  State,  since  Pub. 
Stat.  R.  I.  cap.  142,  §§  6,  7,  relate  only  to  promissory  notes.  We  do 
not  think,  however,  that  this  fact  prevents  us  from  holding  these  bonds 
to  be  negotiable.  Such  statutes  are  declaratory  and  remedial  and  are 
evidently  not  intended  to  exclude  other  forms  of  negotiable  paper. 
Bonds  of  this  sort  are  clearly  within  the  intent  of  the  statute  to  give  a 
title  b\-  deliver)*  and  a  right  of  action  to  the  holder  of  negotiable  paper, 
and  the  bonds  in  effect  are  promissorj-  notes.  The  special  provisions 
contained  therein  are  not  such  as  to  deprive  them  of  their  fundamental 
character  of  a  promise  to  pa}'  at  a  certain  time.  These  bonds  are  not 
given  as  collateral  to  a  note  secured  by  mortgage,  but  the  mortgage  is 
security1  for  the  bonds  themselves.  Hiker  v.  Sprague  Manuf.  Co.,  14 
R.  I.  402.  See  Costello  v.  Crowett,  127  Mass.  293,  and  134  Mass.  280. 

[Omitting  opinion  on  remaining  point.] 

Our  conclusion  is  that  the  demurrer  to  the  negotiability  of  the  bonds 
must  be  overruled,  and  the  demurrer  to  the  statements  of  the  plaintiffs 
present  right  of  action  must  be  sustained. 


0. 


224  DUDLEY   V.   KENTUCKY  HIGH   SCHOOL. 


CHAPTER  VII. 
POWER  OF   MAJORITY.* 


DUDLEY  v.  KENTUCKY  HIGH  SCHOOL. 

1873.     9  Bush  (Ky.),  576. 

CradocJc  &  Trabue,  for  appellant. 

Ira  Julian,  for  appellee.2 

LINDSAY,  J.  The  order  from  which  this  appeal  is  prosecuted  must 
be  regarded  as  final.  The  special  demurrer  to  the  jurisdiction  of  the 
court  was  sustained,  and  a  judgment  rendered  against  appellant  for  the 
costs  of  the  entire  proceeding.  This  is  equivalent  to  dismissing  the 
petition  for  the  want  of  jurisdiction  in  the  court,  and  effectually  pre- 
cludes appellant  from  taking  further  steps  in  this  litigation  to  obtain 
the  relief  desired. 

We  are  inclined  to  differ  with  the  circuit  court  as  to  its  want  of  juris- 
diction to  enjoin  the  collection  of  so  much  of  appellant's  subscription  to 
the  high-school  as  had  not  been  reduced  to  a  judgment  in  the  Franklin 
Quarterly  Court ;  but  this  question  need  not  be  considered  in  view  of 
the  fact  that  we  feel  satisfied,  after  a  careful  examination  of  the  petition, 
that  it  sets  out  no  cause  of  action,  and  that  under  the  facts  as  presented, 
and  the  provisions  of  the  act  of  the  General  Assembly  incorporating  the 
high-school,  it  cannot  be  so  amended  as  to  present  a  cause  of  action. 

The  object  of  the  corporation  was  to  establish  and  maintain  a  high- 
school,  and  not  to  make  money,  and  it  has  no  legal  right  to  engage  in 
speculations  or  investments  in  real  estate  for  the  last  named  purpose ; 
but  it  has  the  expressly  delegated  power  "  to  receive  and  hold  for  the 
benefit  of  said  high-school  any  lands,  tenements,  etc.,  ...  by  gift, 
devise,  donation,  contract,  or  purchase."  It  is  not^cojnplained  that  the 
house  and  lands  purchased  or  about  to  be  purchased  from  Gaines  are  not 
to  be  held  for  the  beri^nToTthei school,  but  that  the  corporation  is  unable 
to  pa}'  the  cooCSHflplated  piietfTajjd"l:bat  thejneyitable  result  of  the  pur- 
chase, if  consummatectriviirBe^hg  bankrujjtcy^of  the  corporation  and 
the  failure  of  the  project  to  establish  the  school. 

1  This  subject  ia  also  discussed  in  various  cases  which  are  given  tinder  special  topics 
treated  of  in  subsequent  chapters;  especially  in  the  cases  relating  to  the  stockholder's 
right  to  maintain  suit,  the  cases  relating  to  the  reserved  power  of  the  legislature  to 
alter  or  amend  charters,  and  the  cases  on  ultra  vires.  —  ED. 

2  Citations  of  counsel  omitted.  —  ED. 


DUDLEY   V.    KENTUCKY   HIGH   SCHOOL.  225 

It  may  be  conceded  that  the  facts  stated  in  the  petition  fully  author- 
ize this  conclusion,  and  yet  it  does  not  follow  that  a  court  of  equity  has 
the  power  at  the  suit  of  a  stockholder  to  interfere  by  injunction  to  pre- 
vent the  corporation  from  executing  a  contract  it  has  the  lawful  right 
to  make. 

It  is  true  that  a  majority  of  stockholders,no  matter  how  great,  have 
not  the  right  to  divert  the  funds  of  a  joint-stocTTTncorporated  company  <-j  Vfc^ 
~lb  any~btb~er  than  the  purposes  for  which  it  was  organized ;  and  if  such  ..i  •*• 
funds  are  about  to  be  so  diverted,  a  sjx)ckhoUler  may  file  a  bill  in  equity 
against  the  compan}'  to  restrain  it  "by  injunction  from  such  diversion  or 
misapplication.  Bngshaw  v.  Eastern  Counties  Railn-ni/  C<>.  (7  Hare, 
114;  1  Beavan,  1) ;  Marsh  v.  Eastern  Railway  Co.  (40  N.  H.  548). 
But  relief  will  not  be  granted  unless  the  corporation  is  about  to  do  some 
act  outside  of  the  scop.c  oj"  its^  authority,  or  in  disobedience  to  the  pro- 
visions of  its  constitution^  for  so  long  ^as  it  exercises  the  powers 
granted  by  the  charter  the  acts  of  the  company  must  TxT  treated  by  the 
courts  as  the  acts  of  all  the  stockholders. 

Each  and  every  stocliuolder  contracts  that  the  will  of  the  majority 
shall  govern  in  all  matters  coming  within  the  limits  of  the  act  of  incor- 
poration ;  and  in  cases  involving  no  breach  of  trust,  but  only  error  or 
mistake  of  judgment  upon  the  part  of  the  directors  who  represent  the 
company,  individual  stockholders  have  no  right  to  appeal  to  the  courts 
to  dictate  the  line  of  policy  to  be  pursued  by  the  corporation.  Angell 
and  Ames  on  Corporations,  sec.  393.  Nor  does  the  irregular  manner 
in  which  the  board  of  directors  voted  upon  the  proposition  to  make 
the  purchase  from  Gaines  authorize  the  chancellor  to  interpose  to  pre- 
vent its  consummation.  In  the  case  of  Foss  v.  Harbottle  (2  Hare, 
461),  where  the  object  of  the  bill  in  equity  was  to  obtain  relief  against 
what  was  alleged  to  be  a  fraud  committed  by  certain  of  the  directors  in 
an  incorporated  company,  which  fraud  consisted  in  the  sale  to  themselves, 
as  representatives  of  the  company,  of  lands  in  which  the}'  were  indi- 
vidually interested,  Vice-Chancellor  Wigram  held  that  although  the  act 
might  be  voidable  by  the  company,  yet,  inasmuch  as  a  majority  of  the 
proprietors  might  at  a  general  meeting  confirm  it,  he  declined  to  inter- 
fere, saying,  "  While  the  court  maybe  declaring  the  acts  complained  of 
to  be  void  at  the  suit  of  the  present  plaintiffs,  who  in  fact  may  be  the  only 
proprietors  who  disapprove  of  them,  the  governing  body  of  proprietors 
ma}*  defeat  the  decree  by  lawfully  resolving  upon  the  confirmation  of 
the  very  acts  which  are  the  subject  of  the  suit."  So  in  this  case,  while 
it  may  be  that  the  corporation  has  the  right  to  avoid  the  purchase  from 
Gaines,  because  one  of  the  directors,  without  whose  vote  the  propo- 
sition would  have  been  rejected,  was  allowed  to  vote  by  proxy,  yet  it 
may  be  that  Dudley  is  the  only  stockholder  who  disapproves  of  the 
purchase,  and  it  might  result  that,  at  the  time  the  court  was  protecting 
him  against  the  payment  of  his  subscription  because  of  the  unauthor- 
ized action  of  the  directors,  a  majority  of  the  stockholders  in  general 
meeting  might  ratify  or  have  already  ratified  the  purchase,  and  bound 

15 


226  NATUSCH  V.   IRVING. 

Dudley  under  his  contract  of  subscription  to  submit  to  their  will  thus 
regularly  and  legally  expressed. 

It  may  be  that  thejujce  agreedJiQ_be_paid  for  the  house  and  lands  is 
greatly  more  than  its  value,  but  about  this  matter  the  opinion  of  the 
majority  of  the  stockholders^aa  jexpxessed-Jthrough  the  directory  must 
control,  and  so  far  as  the  action  of  the  court  in  this  case  is  concerned 
it  is  immaterial  whether  the  corporation -acted,  ^wisely  or  unwisely  in 
contracting  a  debt  whio.h  possibly  it.  will  hp  mmhjp  to  pay.  The  charter 
empowers  it  to  make  purchases  of  land,  to  contract  debts,  and  to  issue 
bonds  to  an  amount  not  over  two  thirds  of  the  stock  subscribed  ;  and 
if  these  powers  are  so  exercised  as  to  result  in  loss  to  the  stockholders, 
it  is  a  misfortune  against  which  the  courts  can  afford  no  protection. 

Judgment  affirmed. 


NATUSCH  y.  IRVING  ET  ALS. 

1824.     Gow  on  Partnership,  Appendix  No.  VI.     Page,  398.1 

PLAINTIFF,  on  behalf  of  himself  and  all  others  the  shareholders,  mem- 
bers, or  partners  of  the  Alliance  British  and  Foreign  Life  and  Fire 
Assurance  Company,  filed  this  bill  against  the  president  and  directors, 
praying,  inter  alia,  for  an  injunction  to  restrain  them  from  carrying  on 
the  business  of  marine  insurance  in  the  name  or  on  the  account  of  the 
compan}',  and  from  applying  the  capital  of  the  company  to  any  such 
purpose. 

The  case  made  by  the  bill  and  affidavits  was,  in  part,  as  follows : 

A  prospectus  was  issued  for  the  formation  of  an  unincorporated  com- 
pany to  grant  fire  and  life,  insurance,  with  a  capital  of  five  million 
pounds  divided  into  fifty  thousand  shares,  plaintiff  subscribed  for  fifteen 
shares,  paid  the  required  deposit,  insured  his  life  in  the  company  and 
paid  the  insurance  premium.  He  was  willing  also  to  execute  a  proper 
deed  of  settlement.  After  the  plaintiff  had  subscribed,  &c.,  the  ma- 
jority of  the  company  undertook  to  carry  on  the  additional  business  of 
marine  insurance.  They  prepared  a  deed  of  settlement  which  contained 
provisions  for  enabling  the  company  to  carry  on  marine  insurance  ;  and 
which  plaintiff  refused  to  execute.  Plaintiff  objected  to  the  company's 
carrying  on  a  marine  insurance  business.  The  directors  informed 
plaintiff  that,  if  he  was  dissatisfied  with  the  course  intended  to  be 
pursued,  he  might  receive  back  his  deposit  with  interest,  and  also  have 
his  life  policy  cancelled  and  the  premium  returned. 

LORD  ELDON,  CHANCELLOR. 


1  Statement  abridged.     Part  of  opinion  omitted.     The  case  was  first  reported  in 
Gow,  and  has  since  been  reported  iu  2  Cooper,  Tempore  Cotteuhani,  358.  —  ED. 


NATUSCH   V.   IRVING.  227 

3.  An  offer  is  made  to  the  plaintiff  that  he  may  receive  back  his 
deposit  with  interest  from  the  date  of  the  payment,  and  he  is  desired 
to  consider  himself  as  having  received  notice  thereof.     But  it  is  not, 
I  apprehend,  competent  to  any  number  of  persons  in  a  partnership 
(unless  the}-  show  a  contract  rendering  it  competent  to  them)  formed 
for  specified  purposes,  if  they  propose  to  form  a  partnership  for  very 
different  purposes,  to  effect  that  formation   b}-  calling  upon  some  of 
their  partners  to  receive  their  subscribed  capital  and  interest  and  quit 
the  concern ;  and,  in  effect,  merely  by  compelling  them  to  retire  upon 
such  terms,  so  to  form  a  neic  company.     This  would,  as  to  partner- 
ships, be  a  most  dangerous  doctrine.    Where  a  partnership  is  dissolved 
(even  where  it  can  be  in  a  sense  dissolved  the  instant  after  notice  to 
dissolve  is  given,  if  there  be  no  contract  to  the  contrary),  it  must  still 
continue  for  the  purpose  of  winding  up  its  affaire,  of  taking  and  settling 
all  its  accounts,  and  converting  all  the  property,  means  and  assets  of  the 
partnership  existing  at  the  time  of  the  dissolution  as  beneficiall}-  as  may 
be  for  the  benefit  of  all  who  were  partners,  according  to  their  respective 
shares  and  interests ;    and  the  other  partners  cannot  say  to  him,  to 
whom  they  have  given  an  offer  of  his  deposit  and  interest,  Take  that, 
and  ire  are  a  new  company,  keeping  the  effects,  means,  assets,  and 
property  of  the  old,  as  the  property  of  the  new  partnership. 

4.  The  company  will  indemnify  the  plaintiff  against  loss  03-  its  trans- 
actions already  had,  or  hereafter  to  be  had,  not  for  the  specified  pur- 
poses of  the  institution.     But  the  right  of  a_j)artner  is  to  hold  to  the 
specified  purposes  his  partners  whilst  the  partnership  continues,  and  not 
tojrest  upon  indemnities  with  respect  to  what  he_has  not  contracted  to 
engage  in. 

5.  A  dissatisfied  partner  ma}'  sell  his  shares  for  double  what  he 
originally  gave  for  them.     But  he  cannot  be  compelled  to  part  with 
them  for  that  reasoji ;  it  may  be  his  principal  reason  for  keeping  them, 
having  the  partnership  concern  carried  on  according  to  the  contract. 
The  original  contract  and  the  loss  which  his  partners  would  suffer  by  a 
dissolution,  is  his  securit}'  that  it  shall  be  so  carried  on  for  him  and 
them  beneficially,  and  with  augmented  improvement  in  the  value  of  his 
shares  and  their  shares. 

If  six  persons  joined  in  a  partnership  of  life  assurance,  it  seems  clear 
that  neither  the  majority,  nor  anj*  select  part  of  them,  nor  five  out  of 
the  six,  could  engage  that  partnership  in  marine  insurances,  unless  the  . 
contract  of  partnership  expressly  or  impliedly  gave  that  power ;  be- 
cause if  this  was  otherwise,  anjindividualor  indiyuUialg,  by  engaging 
in^iie  J^icdified  eonoeri^jTiight  hp  im^jjpfltpfT^in  pny__pther  concern 
whatever,  however  different  in  its_nature.  against  bis  consent. 

But  if  a  part  of  the  six  openly  and  publicly  professed  their  intention 
to  engage  the  partnership  in  another  concern,  and  clearly  and  distinctly 
brought  this  to  the  knowledge  of  one  or  more  of  the  other  partners,  and 
such  one  or  more  of  the  other  partners  could  be  clearly  shown  to  have 


228  NATUSCH   V.   IRVING. 

acquiesced  in  such  intention,  and  to  have  permitted  the  other  partners 
to  have  entered  upon  and  to  have  engaged  themselves  and  the  body  in 
such  new  projects,  and  thereby  to  have  placed  their  partners,  so  en- 
gaged, in  difficulties  and  embarrassments,  unless  the}'  were  permitted 
to  proceed  in  the  farther  execution  of  such  projects,  if  a  court  of  equity 
would  not  go  the  length  of  holding  that  such  conduct  was  consent,  it 
would  scarcely  think  parties  so  conducting  themselves  entitled  to  the 
festimcm  remedium  of  injunction. 

It  may  be  taken  that  the  principle  that  would  apply  to  the  partner- 
ship of  six,  will  apply  to  this  partnership  of  6CO  or  700  ;  340  have  exe- 
cuted in  respect  of  not  quite  half  the  number  of  shares  :  there  probably 
may  be  therefore  600  or  700  members.  To  those  who  have  not  had 
occasion  to  observe  the  boldness  of  speculation,  it  may  seem  astonishing 
that  persons,  and  so  many  in  number,  should  have  engaged  themselves 
in  a  speculation  so  little  explained,  and  undertaken  to  execute  deeds, 
of  the  contents  of  which  they  had  so  little  information.  To  those  who 
know  the  difficult}1  of  applying  the  rules  of  law  and  equity  to  societies 
constituted  of  such  numbers  of  persons  not  incorporated,  it  is  not  matter 
of  surprise  that  persons,  ignorant  of  those  difficulties,  should  become 
members  of  such  societies  ;  it  may  be  matter  of  surprise  to  them  that 
persons  who  know  the  difficulty  of  applying  those  rules  should  become 
members,  even  where  the  nature  of  the  speculation  is  clearly  explained, 
and  full  information  is  given  of  the  contents  of  the  deeds  to  be  exe- 
cuted. Much  has  been  done  with  respect  to  the  difficulty  alluded  to,  by 
provisions  how  those  who  have  demands  upon  such  societies  are  to  sue, 
and  how  such  societies  are  to  be  sued  ;  much  remains  to  be  done,  and 
particularly  as  to  rendering  simple  and  effectual  the  remedies  of  the 
members  of  such  societies  against  each  other.  It  is  observed  that  the 
members  of  this  society  underwriting  will  be  each  liable  to  the  bank- 
rupt laws.  That  depends  upon  the  act  of  parliament  which  is  to  take 
effect  in  May  next.1  Shares  may  devolve  to  feme  coverts,  infants,  &c. ; 
out  whatever  are  the  difficulties,  courts  must  struggle  to  remedy  them, 
and  to  prevent  particular  members  of  those  bodies  from  engaging  other 
members  in  projects  in  which  they  have  not  consented  to  be  engaged, 
or  the  engaging  in  which  they  have  not  encouraged,  assented  to,  em- 
powered, or  acquiesced  in  expressly  or  tacitly,  so  as  to  make  it  not 
equitable  that  they  should  seek  to  restrain  them.  The  principles  which 
a  court  would  act  upon  in  the  case  of  a  partnership  of  six  must,  as  far 
as  the  nature  of  things  will  admit,  be  applied  to  a  partnership  of  600. 

The  injunction  was  granted. 

1  5  Geo.  4,  c.  98,  s.  2,  by  which  an  underwriter  is  declared  to  be  a  trader  liable  to 
the  bankrupt  laws,  and  see  6  Geo.  4,  c.  16,  s.  2.  Formerly  it  was  held  that  an  under 
writer,  merely  in  that  character,  could  not  be  a  bankrupt.  Ex  parts  Bell,  15  Vesey, 
355. 


ASHTON   V.    BURBANK.  229 


ASHTON  v.  BURBANK. 

1873.     2  Dillon,  435.1 

SUIT  on  a  note  given  for  an  assessment  upon  stock  in  a  corporation. 
Original  charter  authorized  company  to  transact  a  "life  and  accident 
insurance"  business.  After  defendant's  subscription  to  the  stock,  the 
charter  was  amended,  the  name  was  changed,  and  the  corporation 
was  authorized  to  transact  the  business  of  "  fire,  marine,  and  inland 
insurance." 

The  amended  charter  was  accepted,  but  in  point  of  fact  the  corpora- 
tion took  no  rj«k«  during  the  short_period  it  afterwards_jjjd_  business 
except  such  aswere  authorized  bv  its  original  charter.  The  defendant 
neTEEer  procured~^ior  assented  to  the  amendatory  act,  nor  did  he  know 
of  it  until  after  its  passage,  and  thereupon  he  protested  against  it  and 
refused  to  pay  the  note  on  this  ground.  The  note  was  sold  to  plaintiff 
by  the  insurance  company  after  it  ceased  to  do  business,  and  long  after 
the  note  was  due. 


DILLON,  J. 

3,  The  change  in  the  charter,  by  which  a  life  and  accident  com- 
pany was  authorized  to  transact  fire,  marine,  and  inland  insurance, 
is  an  organic  change  of  such  a  radical  character  as  to  discharge  pre- 
vious subscribers  to  the  stock  of  the  company  from  any  obligation  to 
pay  their  subscription,  unless  the  change  is  expressly  or  impliedly 
assented  to  by  them.  Here  there  was  no  such  assent,  and  no  acquies- 
cence in  the  structural  change  made  in  the  charter  of  the  company. 
The  company  could  not,  against  such  a  subscriber,  maintain  a  suit  to 
collect  his  subscription,  and  take  the  money  and  use  it  as  capital  for 
the  transaction  of  business  under  the  charter  as  altered.  We  think,  in 
such  a  case,  the  subscriber  is  not  bound  to  enjoin  action  under  the 
amended  charter,  but  ma}*,  if  he  elects,  defend  against  an  action  to 
recover  on  his  subscription  to  the  stock.  If  the  company  accepted  the 
amended  charter,  as  it  did  by  adopting  a  new  name,  it  is  not  essential 
to  such  a  defence  to  show  that  at  the  time  of  the  trial  the  corporation 
had  actually  exercised  the  enlarged  powers  conferred  upon  it.  The 
defendants  are  not  bound,  on  their  subscription,  to  pay  to  the  company 
money  which,  if  paid,  may  be  used  as  capital  to  carry  on  the  business 
authorized  bj-  the  amended  charter. 

Judgment  for  the  defendants, 

NELSON,  J.,  concurs. 

t 

1  Statement  abridged.  Only  so  much  of  the  case  and  of  the  opinion  given  as  relates 
to  one  point.  —  ED. 


230       HARTFORD   AND   NEW   HAVEN   RAILROAD   CO.   V.   CROSWELL. 


HARTFORD   AND   N.   H.   R.    CO.    v.    CROSWELL. 

1843.     sHiJi  (N.  Y.),  383. 

ASSUMPSIT,  tried  at  the  New- York  circuit  in  March,  1841,  before 
GRIDLEY,  C.  Judge.  The  action  was  brought  to  recover  certain  instal- 
ments upon  the  defendant's  subscription  to  the  capital  stock  of  the 
plaintiffs'  company.  On  the  trial  the  case  was  this  :  In  May,  1833,  the 
legislature  of  Connecticut  passed  an  act  authorizing  the  plaintiffs  to 
construct  a  rail-road  from  the  town  of  Hartford  to  the  city  of  New- 
Haven.  The  capital  stock  was  divided  into  shares  of  $100  each,  and 
the  defendant  subscribed  for  and  was  allowed  10  shares.  The  sub- 
scription was  in  these  words:  "Whereas  the  general  assembly  of  the 
state  of  Connecticut,  at  their  session  in  Ma}-,  1833,  passed  a  resolution 
incorporating  the  Hartford  and  New-Haven  Rail-Road  Company,  with 
power  to  construct  a  rail-road  or  wa}'  from  the  town  of  Hartford  to  the 
city  of  New-Haven :  We  do  hereby  subscribe  to  the  stock  of  said  com- 
pany the  number  of  shares  annexed  to  our  names  respectively,  on  the 
terms,  conditions  and  limitations  mentioned  in  said  resolution.  New- 
York,  July  31,  1835."  In  May,  1839,  the  legislature  of  Connecticut 
amended  the  act  of  incorporation  by  authorizing  the  company  to  "  pro- 
cure, charter  or  purchase  and  hold  "  such  number  of  steamboats,  to  be 
used  in  connection  with  their  road,  as  they  might  deem  expedient,  to  an 
amount  not  exceeding  $200,000  ;  and,  for  that  purpose,  to  increase  their 
capital  stock  to  the  same  amount.  On  the  2d  of  July  following,  the 
board  of  directors  resolved  to  accept  the  amendment,  and  to  adopt  it  as 
a  part  of  the  charter.  They  also  resolved  that  the  stockholders  who 
were  paying  up  their  instalments  should  be  allowed  a  preference  in  the 
distribution  of  the  new  stock  to  be  created  in  pursuance  of  the  amend- 
ment. In  September,  1839,  at  a  general  meeting  of  the  stockholders, 
the  resolution  to  accept  the  amendment  was  ratified.  Due  notice  of 
this  meeting  was  given  ;  but  the  defendant  was  not  present,  nor  did  it 
appear  that  he  had  at  an}'  time  signified  his  assent  to  an  acceptance  of 
the  amendment.  Intermediate  the  date  of  the  defendant's  subscription 
and  the  amendment  of  the  charter,  the  instalments  sought  to  be  recov- 
ered were  regularly  called  for  by  public  notice  to  that  effect,  and  a  per- 
sonal demand  thereof  was  shown  to  have  been  made  of  the  defendant, 
who  refused  to  pay.  The  road  was  completed  and  put  in  operation 
before  the  commencement  of  the  suit.  Upon  these  facts  a  verdict  was 
rendered  for  the  plaintiffs  by  consent,  subject  to  the  opinion  of  the  court 
upon  a  case. 

S.  P.  Staples,  for  the  plaintiffs. 

(7.  Me  Vean,  for  the  defendant. 

By  the  Court,  NELSON,  Ch.  J.  The  main  objection  taken  to  a  recov- 
ery in  this  case  is,  that  the  plaintiffs  are  seeking  to  enforce  the  per- 
formance of  a  different  contract  from  that  into  which  the  defendant 


HARTFORD   AND   NEW   HAVEN   RAILROAD   CO.   V.   CROSWELL.      231 

entered  when  he  subscribed  for  the  stock ;  in  other  words,  that  the 
defendant  never  assented  to  the  contract  upon  which  the  action  is 
founded. 

The  original  charter  conferred  upon  the  company  all  the  usual  and 
necessary  powers  for  locating  and  constructing  a  railroad  from  the 
town  of  Hartford  to  the  city  of  New-Haven.  The  ten  shares  sub- 
scribed for  by  the  defendant  were  expressly  taken  upon  "  the  terms,  / 
conditions  and  limitations "  mentioned  in  the  charter.  And  such 
would  doubtless  have  been  the  legal  effect  of  the  subscription  had  no 
reference  to  the  charter  been  made  in  it.  The  contract  thus  entered 
into  was  as  specific  and  definite  as  the  charter  of  the  compan}-  could 
make  it ;  and  the  meaning  and  intent  of  the  parties  cannot  therefore 
be  mistaken.  It  was  a  contract  to  take  stock  in  an  association  incor- 
porated for  a  particular  object,  having  such  limited  and  well  defined 
powers  as  were  necessaiy  to  the  accomplishment  of  that  object.  The 
defendant  assented  to  the  object  by  his  subscription,  and  thereb}- agreed 
that  his  interest  should  be  subject  to  the  direction  and  control  of  the 
powers  thus  expressl}'  conferred,  but  nothing  more. 

Since  entering  into  this  contract,  the  plaintiffs  have  procured  an 
amendment  of  their  charter,  by  which  the}-  have  superadded  to  their 
original  undertaking,  a  new  and  very  different  enterprise  —  and,  for 
aught  that  can  be  known,  a  ver}'  hazardous  one  —  with  the  necessary 
additional  powers  to  carry  it  into  effect.  Instead  of  confining  their 
operations  to  the  construction  and  management  of  their  rail-road  between 
Hartford  and  New-Haven,  the}*  have  undertaken  to  establish  and  main- 
tain a  line  of  water  communication  by  means  of  steamboats,  at  an 
expense  not  to  exceed  $200,000 ;  to  all  which,  it  is  insisted,  the  con- 
tract of  the  defendant  has  become  subject,  without  his  approbation  or 
assent. 

It  is  most  obvious,  if  incorporated  companies  can  succeed  in  estab- 
lishing this  sort  of  absolute  control  over  the  original  contract  entered 
into  with  them  by  the  several  corporators,  there  is  no  limit  to  which  it 
may  not  be  carried  short  of  that  which  defines  the  boundary  of  legis- 
lative authority.  The  proposition  is  too  monstrous  to  be  entertained 
for  a  moment.  Corporations  possess  no  such  power.  Indeed  they  can 
exercise  no  powers  over  the  corporators  beyond  those  conferred  b\-  the 
charter  to  which  the}'  have  subscribed,  except  on  the  condition  of  their 
agreement  or  consent.  This  is  so  in  the  case  of  private  associations, 
where  the  articles  entered  into  and  subscribed  by  the  members  are 
regarded  as  the  fundamental  law  or  constitution  of  the  society,  which 
can  only  be  changed  by  the  unanimous  voice  of  the  stockholders. 
(Livingston  v.  Lynch,  4  John.  Ch.  Rep.  573;  Coll.  On  Part.  641.) 
So  here,  the  original  charter  is  the  fundamental  law  of  the  association 
—  the  constitution  which  prescribes  limits  to  the  directors,  officers  and 
agents  of  the  company  not  only,  but  to  the  action  of  the  corporate 
bod}1  itself — and  no  radical  change  or  alteration  can  be  made  or 
allowed,  by  which  new  and  additional  objects  are  to  be  accomplished 


232      HARTFORD   AXD   NEW   HAVEN   RAILROAD   CO.    V.   CROSWELL. 

or  responsibilities  incurred  03*  the   company,  so  as  to  bind  the  indi- 
viduals composing  it,  without  their  assent. 

The  question  has  been  the  subject  of  consideration  in  Massachusetts 
and  Pennsylvania,  and  in  each  the  courts  have  not  hesitated  to  main- 
tain the  inviolability  of  the  contract  as  original!}*  entered  into,  denying 
to  the  company  the  power  of  altering  it  essentially  and  of  binding  the 
subscribers  who  have  not  given  their  assent.  In  the  case  of  The  Mid- 
dlesex Turnpike  Corporation  v.  Locke,  (8  Mass.  Rep.  268,)  the  suit 
was  brought  upon  a  subscription  contract  for  stock,  by  which  the 
defendant  agreed  to  take  one  share  and  to  pay  all  assessments  made 
upon  it.  The  ground  of  defence  which  prevailed  was,  that  the  location 
of  the  turnpike  road  had  been  changed  by  an  act  of  the  legislature  ; 
after  the  defendant's  subscription,  the  act  having  been  passed  at  the 
instance  of  the  corporation  ;  and  that  the  defendant  had  never  assented 
to  the  alteration.  The  court  said  :  "  The  plaintiffs  rely  on  an  express 
contract,  and  were  bound  to  prove  it  as  they  allege  it.  Here  the  proof 
is  of  an  engagement  to  pay  assessments  for  making  a  turnpike  in  a  cer- 
tain specified  direction.  The  defendant  ma}'  truly  say,  non  hcec  in 
feeder  a  veni.  He  was  not  bound  by  the  application  of  the  directors  to 
the  legislature  for  the  alteration  of  the  course  of  the  road,  nor  by  the 
consent  of  the  corporation  thereto."  The  same  principle  was  recog- 
nized and  admitted  in  the  case  of  The  Indiana  &  Ebensburgh  Turn- 
pike Co.  v.  Phillips,  (2  Penn.  Rep.  184.) 

I  do  not  deny  that  alterations  may  be  made  in  the  charter  by  the 
procurement  of  the  company,  without  changing  the  contract  so  essen- 
tially as  to  absolve  the  subscriber.  Such  would  be  the  case,  perhaps, 
in  respect  to  mere  formal  amendments,  or  those  which  are  clearly 
>"  enough  beneficial,  or  at  least  not  prejudicial  to  his  interests.  A  modi- 
fication of  the  grant  may  frequently  be  advisable,  if  not  necessary,  in 
order  to  facilitate  the  execution  of  the  very  object  for  which  the  com- 
pany was  originally  established  ;  and  I  admit  there  are  intrinsic  diffi- 
culties in  the  way  of  laying  down  any  general  rules  by  which  to 
distinguish  between  the  two  kinds  of  cases.  Each  must  depend  upon 
its  own  circumstances,  and  be  disposed  of  with  due  regard  to  the  invio- 
lability belonging  to  all  private  contracts. 

Some  of  the  cases  which  have  occurred  exemplify  the  difficulties 
attending  the  question.  In  Irvin  v.  The  Turnpike  Co.,  (2  Penn.  Rep. 
466,)  it  was  held  that  a  benefit  which  results  to  individual  property  by 
the  location  of  the  road,  did  not,  in  contemplation  of  law,  enter  into  the 
consideration  of  the  contract  of  subscription.  Hence,  it  was  there 
decided  that  the  subscriber  was  bound,  notwithstanding  a  change  in 
the  location  of  the  road  made  bj-  an  act  of  the  legislature  against  his 
remonstrance ;  and  this  though  the  change  was  obviously  to  his  preju- 
dice in  point  of  fact.  The  decision,  it  will  be  perceived,  is  contrary  to 
the  case  before  referred  to  in  Massachusetts.  The  court,  moreover, 
were  not  unanimous,  Rogers  and  Kennedy,  Js.  having  dissented.  In 
Gray  v.  The  Monongahela  Navigation  Co.,  (2  Watts  &  Serg.  156,) 


STEVENS  V.   RUTLAND   AND   BURLINGTON  RAILROAD   CO.        233 

the  same  learned  court  held,  that  an  alteration  in  the  charter,  by  which 
additional  privileges  were  granted  to  the  corporation,  was  not  such  a 
violation  of  the  contract  of  subscription  as  would  relieve  the  subscriber, 
although  the  additional  privileges  might  extend  the  liabilities  of  the 
company  and  thus  incidental^*  affect  him. 

I  refer  to  the  last  two  cases  as  affording  a  very  full  and  able  exam- 
ination of  the  subject,  without  intending,  at  this  time,  to  assent  to  their 
conclusions  or  to  all  the  reasonings  of  the  learned  chief  justice  who 
delivered  the  opinions.  In  each  of  them,  however,  the  general  principle 
before  asserted  in  The  Indiana  &  Ebensb.  Turnpike  Co.  \.  Phillips 
is  recognized,  viz.  that  the  alteration  by  the  legislature  may  be  so 
extensive  and  radical  as  to  work  a  dissolution  of  the  contract ;  but  an 
effort  is  made  so  to  modify  and  regulate  the  application  of  the  principle 
as  to  admit  of  improvements  in  the  charter,  useful  to  the  public  and 
beneficial  to  the  company,  without  this  consequence. 

In  the  case  before  us,  the  change  in  the  powers  and  purposes  of  the 
plaintiffs'  company  has  been  so  extensive  as  to  preclude  us  from  sanc- 
tioning a  recovery  upon  the  defendant's  subscription,  unless  we  are 
prepared  entirely  to  abandon  the  principle  above  stated  and  to  declare 
that  the  interests  of  subscribers  shall  be  subject  to  the  will  and  pleasure 
of  a  majority  of  the  stockholders.  Judgment  for  the  defendant. 


STEVENS  v.  RUTLAND  &  BURLINGTON  R.  CO. 

1851.  29 


BILL  IN  CHANCERY,  preferred  before  the  Chancellor  of  the  Third 
Judicial  Circuit,  against  the  Rutland  &  Burlington  Railroad  Company 
and  three  of  its  directors,  by  a  stockholder  ;  the  object  of  which  is  to 
obtain  an  injunction,  restraining  defendants  from  using  the  corporate 
funds  or  credit  for  the  purpose  of  constructing  a  railroad  from  Burlington 
to  Swanton.  The  original  charter  authorizes  the  building  of  a  railroad 
from  BurlincctQa_in^  southerjy^and  southeasterly.  directioo-tQ  jt  point 
on  the  Connecticut  Riven  Itprovides  tliatthe  capital  shall  be  one 
million  dollars  ;  with  the"  right  in  the  corporation  to  increase  it  to  an 
amount  sufficient  to  complete  said  road  and  furnish  all  necessary 
apparatus  for  conveyance.  The  corporation  was  organized,  the  stock 
taken,  and  the  road  constructed  and  put  in  operation.  TJie_.  plaintiff 
subscribedj  and  paid  fpjv_fiyeshares  ;  and  is  still  the  owner  of  the 
same.  After  the  plain  tiff  had~~rJecome  a  stockholder,  and  after  the 
road  was  in  operation,  the  legislature  passed  an  additional  act,  author- 
izing the  corporation  to  extend  its  railroad  from  Burlington  northerly 
to  Swanton,  a  distance  of  about  thirty  miles  ;  also  providing  that  the 

1  Statement  abridged.     Portions  of  opinion  omitted.  —  ED. 


234        STEVENS   V.   RUTLAND   AND   BURLINGTON   RAILROAD   CO. 

corporation,  in  the  construction  of  this  extension,  shall  have  all  the 
rights  and  privileges  and  be  subject  to  all  the  liabilities  contained  in 
the  original  charter.  This  additional  act  was  accepted  b}-  the  board  of 
directors.  The  directors  caused  a  meeting  of  the  stockholders  to  be 
called,  to  see  if  they  would  accept  of  this  act  as  an  amendment  of  their 
charter ;  and  threatened,  in  case  of  acceptance,  to  apply  the  corporate 
funds  in  constructing  the  extension  against  the  will  of  the  minority  and 
particularly  of  the  plaintiff.  After  the  bill  was  filed,  and  prior  to  the 
hearing,  the  meeting  was  held,  and  a  majority  of  the  stockholders 
voted_to_accej3t  the  addjjtiojiaLacjL-as  an  amendment  of  their  charter. 
The  defendants  filed  noaffidavits,  nor  did  they  apply  for  a  delay  of  the 
hearing  for  the  purpose  of  answering  the  bill. 

BENNETT,  CHANCELLOR.  The  question  is,  can  the  orator,  upon  such 
a  state  of  facts,  claim,  at  the  hands  of  the  chancellor,  his  injunction. 

It  is  an  acTmit.ted  pnnpip1p;  filial^  in  partnerships,  and  joint  stock 
associations,  they  cannot  by  a  vote  of  the  majority  change"~or  alter 
their  fundamcntal_articles  of  copartnership  or  association,Ljyyainst  the 
will  of  the  minority,  however  small,  unless  t.hprp  js  an  express  or  im- 
plied provision  in  the  articles.  themselK£s_Jiiat  they  may  do  it.  It  is 
equally  well  settled,  that  a  court  of  chancery  will,  upon  the  application 
of  an  individual  member  of  a  partnership,  or  joint  stock  association, 
restrain,  by  injunction,  the  majority  from  using  the  funds  or  pledging 
the  credit  of  the  partnership  or  association  in  a  business  not  warranted, 
and  not  within  the  scope  of  their  fundamental  articles  of  agreement. 
Courts  of  equit}-  treat  such  proceedings  by  a  majorit}',  as  a  fraud  upon 
the  other  members,  which  they  will  neither  sanction  or  permit.  To 
prevent  the  commission  of  fraud,  by  injunction,  has  been  one  of  the 
earliest  and  most  appropriate  heads  of  equity  jurisdiction,  as  well  as  to 
relieve  against  it,  when  committed.  It  was  upon  this  principle  that 
Lord  ELDON,  when  High  Chancellor,  upon  the  application  of  a  humble 
individual  member  of  a  company,  which  had  been  organized  for  the 
purpose  of  carrying  on  a  fire  and  life  insurance  business,  restrained  the 
company,  by  injunction,  from  embarking  also  in  the  marine  insurance 
business  ;  though  the  applicant  had  paid  into  the  funds  of  the  company 
only  one  hundred  and  fifty  pounds  as  a  deposit  upon  fifteen  shares,  and 
the  company  gotten  up  by  the  Rothschilds  of  England,  and  composed 
of  six  or  seven  hundred  individuals,  with  a  capital  of  five  millions 
sterling.  See  Natusch  v.  Irving  and  others ;  Gow  on  Part.  Appendix, 
576.  The  same  principle  was  applied  to  a  corporation  by  the  Vice 
Chancellor,  and  by  Lord  Chancellor  BROUGHAM,  in  the  case  of  Ware 
v.  The  Grand  Junction  Water  Company,  2  Rus.  and  Mylne,  470,  S.  C. 
13  Cond.  Ch.  Rep.  126.  The  Vice  Chancellor,  upon  the  application  of 
a  single  shareholder,  restrained  the  corporation,  not  only  from  embark- 
ing their  funds  and  credit  in  a  matter  beyond  the  provisions  of  their 
charter,  but  also  from  applying  to  parliament  for  a  change  in  the  char- 
ter, which  would  warrant  it.  The  change  desired  to  be  made  in  that 
case  was,  that  the  company  might  be  enabled  to  get  their  supply  of 


STEVENS   V.    RUTLAND   AND   BURLINGTON    RAILROAD   CO.        235- 

water  by  means  of  an  aqueduct  from  the  river  Colne  instead  of  the 
river  Thames,  as  authorized  to  do  under  their  original  charter.  Lord 
BROUGHAM,  on  appeal,  dissolved  that  part  of  the  injunction,  it  is  true, 
which  restrained  the  company  from  applying  to  parliament  for  an  alter- 
ation of  the  charter  in  the  particular  desired,  but  retained  the  residue 
of  it.  So  in  Cunliff  v.  The  Manchester  and  Bolton  Canal  Company,  13 
Cond.  Equity  Rep.  131  n.  the  Vice  Chancellor  restrained  the  corpora- 
tion, upon  the  application  of  a  shareholder,  from  applying  to  parlia- 
ment for  a  change  in  their  charter,  to  enable  them  to  convert  a  portion 
of  their  canal  into  a  railway,  and  from  applying  any  of  the  corporate 
funds  to  the  proposed  object. 

Jt  was  well  conceded,  in  the  argument  on  the  defense,  that  if  the  cor- 
poration had  been  about  to  proceed  to  a  construction  of  the  contem- 
plated extension  without  the  act  of  1850,  it  would  have  been  a  proper 
case  for  an  injunction.  The  only  question  which  can  be  open  to  debate 
is,  as  to  what  shall  be  the  effect  of  the  act  of  1850,  and  a  subsequent 
adoption  of  the  act  by  the  corporation,  upon  the  individual  rights  of  a 
shareholder  who  does  not  assent  to  its  adoption  ?  If  bound  by  it,  there 
is  no  equity  in  this  bill.  It  is,  and  must  be  admitted,  that  the  legisla-- 
ture  has  no  constitutional  power,  unless  it  be  reserved  in  the  grant,  to 
change  or  alter  an  act  of  incorporation  without  consent,  and  thereby 
cast  upon  the  company  new  and  additional  obligations,  or  take  from 
them  rights  guaranteed  under  the  original  charter.  And  indeed  this 
the  legislature  have  not  attempted  to  do.  It  is  also  equally  true  that 
it  is  a  part  of  the  law  of  corporations,  that  they  act  according  to  the 
voice  of  the  majority.  But  it  is  to  be  remembered,  that  this  is  not  a 
suit  in  which  the  plaintiff  seeks  to  protect  himself~in  any  corporate 
right,  but  in  his  own  todivicluafright.  growing  out  of  the  fact  of  his 
having  become  a  corporator  by  his  subscription  and  its  payment,  to  the 
capital  stock  of  the  company.  .  One  of  an  aggregate  corporation  may 
contract  with  the  compan}-,  as  well  as  a  third  person  ;  and  the  rights  of 
the  individual  so  contracting  are  no  more  distinct  and  independent  in 
the  one  case  than  in  the  other.  The  plaintiff,  by  his  subscription,  as- 
sumed to  pay  to  the  corporation,  and  ontyJbr  the  purpose  specified  in 
the  charter,  its  amount,  according  to  the  assessments  ;  and  there  was 
at  the  same  time  a  trust  created,  and  an  implied  assumption  on  the 
part  of  the  corporation,  to  apply  it  to  that  object,  and  none  other. 
The  corporation  also  assumed  upon  themselves  to  account  to  this  cor- 
porator for  his  share  of  the  dividends,  when  this  road  should  be  com- 
pleted and  put  in  operation,  and  for  his  share  of  capital  stock,  though 
not  in  numero.  The  charter,  in  this  case,  gives  to  the  state  the  right 
to  purchase  out  the  road  of  the  corporation,  after  a  given  number  of 
years,  upon  certain  terms  therein  specified.  The  relation  between  each 
original  shareholder  and  the  corporation  is  the  same.  The  obligation 
of  the  contract  between  the  legislature  and  the  corporation,  after  an 
acceptance  of  the  charter,  is  no  more  sacred  than  that  which  is  created 
between  the  corporation  and  the  individual  corporator.  Does  any  one 


236        STEVENS   V.   RUTLAND   AND   BURLINGTON   RAILROAD   CO. 

suppose  the  legislature  could,  without  the  consent  of  parties,  absolve  a 
corporator  from  liability  on  his  subscription  to  the  corporation,  or 
modify  it?  and  can  the}*  do  the  reverse  of  it? 

It  is  conceded  that  there  is  a  class  of  alterations  in  a  charter,  which 
the  corporation  may  obtain  and  adopt,  that  would  not  so  essentially 
change  the  contract  as  to  absolve  the  corporator  from  his  subscription, 
or  give  him  a  right  to  complain  in  a  court  of  justice,  in  case  he  had 
previously  paid  it.  Where  the  object  of  the  modification  or  alteration 
of  the  charter  is  auxiliary  to  the  original  object  of  it,  and  designed  to 
^  enable  the  corporation  to  carry  into  execution_the  very  purpose  of  the 
original  grant,  with  moj'ejacility  and  more  beneficially  than  they  other, 
wise  could,  the  original  0011)0111101-  cannot  complain ;  and  I  should  ap- 
prehend it  would  make  no  difference  with  the  rights  of  a  corporation, 
in  such  a  case,  though  he  could  show  that  the  charter,  as  amended,  was 
less  beneficial  to  the  corporators  than  the  original  one  would  have  been. 
The  ground  upon  which  such  amendments  bind  the  corporator,  I  deem  to 
be  his  own  consent.  When  he  becomes  a  corporator  by  his  signing  for 
a  portion  of  the  capital  stock,  he  in  effect  agrees  to  the  by-laws,  rules, 
and  votes  of  the  company,  and  there  is  an  implied  assent,  on  his  part, 
with  the  corporation,  that  the}"  may  apply  for,  and  adopt  such  amend- 
ments as  are  within  the  scoj>e,  and  designed  to  promote  the  execution 
of  the  original  purpose ;  and  he  signs,  and  the  corporation  receive  his 
subscription,  subject  to  such  implied  contingency ;  and  if  we  regard  it 
in  the  nature  of  a  license,  only,  it  would  not  alter  the  principle.  Both 
parties  having  acted  upon  it,  it  would  not  be  countermandable. 

But  suppose  the  object  of  the  alteration  is  a  fundamental  change  in 
the  original  purpose,  and  designed  to  superadd  to  it  something  which 
is  beyond  and  aside  of  it;  does  the  same  principle  apply?  [After  cit- 
ing and  commenting  on  various  cases,  the  last  of  which  is  Hartford 
&  N.  H.  R.  Co.  v.  Croswell,  5  Hill,  385,  the  learned  Chancellor  pro- 
ceeds :]  Chief  Justice  NELSON,  in  his  opinion,  lays  down  this  general 
proposition,  "  that  corporations  can  exercise  no  power  over  the  corpo- 
rators, beyond  those  conferred  by  the  charter  to  which  the}-  have  sub- 
scribed, except  on  the  condition  of  their  agreement  or  consent." 

This  is  a  sound  proposition.  The  consent  or  assent  may,  however, 
be  implied  in  a  class  of  cases,  as  has  already  been  stated,  where  the 
amendment  is  not  regarded  as  fundamental,  and  can  be  brought  within 
the  scope  of  the  original  purpose  of  the  association  ;  and  this  is  going 
to  the  very  verge  of  the  powers  of  the  corporation.  It  is  difficult,  and 
would  be  unwise,  to  attempt  to  lay  down  any  general  rules  to  determine 
in  what  precise  cases  the  assent  of  the  corporator  should  be  implied, 
and  in  what  not.  Itjs  sufficient  for  the  present  purpose  to  say,  that 
his  assent  cannot  be  implied,  in  a  case  like  the  preseirj^lcom-a  majority 
S  vote.  Courts  may  differ,  and  doubtless  will,  in  regard  to  what  alter- 
ations shall  be  sufficient  to  constitute  a  fundamental  change.  But  in 
the  present  case,  I  think,  on  this  point  there  can  be  but  one  opinion. 
The  termini  of  the  road,  as  fixed  by  the  charter,  are  Burlington,  and 


STEVENS   V.   RUTLAND   AND   BURLINGTON   RAILROAD  CO.        237 

some  point  on  the  west  bank  of  Connecticut  River,  in  the  count}'  of 
Windsor  or  Windham.  The  capital  stock  is  one  million  of  dollars,  with 
a  right  in  the  corporation  to  increase  it  to  an  amount  sufficient  to  com- 
plete said  road,  and  furnish  the  necessary  apparatus  for  conveyance. 
The  supplementary  act  of  1850  purports  to  authorize  the  corporation, 
within  three  years,  to  construct  and  extend  their  railroad  from  the 
terminus  in  Burlington,  to  some  point  in  Swanton,  in  the  county  of 
Franklin,  a  distance  of  about  thirty  miles  ;  and  the  act  provides  that 
in  the  construction  of  the  road,  they  shall  have  all  the  rights  and  privi- 
leges, and  be  subject  to  all  the  liabilities,  contained  in  their  original 
charter,  and  the  acts  in  addition  to  it. 

The  franchise  granted  to  this  company  was  territorial ;  and  an  ex- 
tension of  the  termini  necessarily  is  an  extension  of  the  franchise.  It 
cannot  remain  the  same  thing  in  substance,  until  it  can  be  established  / 
that  a  part  is  equal  to  the  whole.  Besides,  the  compan}1  may  increase 
the  capital  stock  to  such  additional  sum  as  shall  be  necessaiy  to  con- 
struct the  extension. 

The  statute  of  1850  is  little  less  in  effect,  if  anything,  than  an  at- 
tempt to  create  in  a  summary  manner,  and  by  the  wa}'  of  reference,  a 
new  corporation,  and  to  transfer  all  the  old  corporators  to  it.  If  all 
the  corporators  had  assented  to  this  transfer,  it  was  well  enough.  The 
change  in  the  purpose  was  not  more  fundamental  in  the  case  from  the 
5th  of  Hill  than  in  this.  It  is  not  necessary  that  the  business  should 
be  changed  in  kind,  to  change  the  original  purpose.  If  this  is  not  a 
change  in  purpose,  it  would  not  be  to  extend  the  road  in  one  direction 
to  Canada  line,  and  in  the  other  to  Massachusetts  line  ;  and  there  would 
be  no  limits  to  the  control  which  the  corporation  might  acquire  over  the 
individual  corporators,  and  this,  too,  without  their  consent,  except 
what  arises  from  the  confines  of  legislative  authority. 

The  change,  then,  in  the  charter  being  fundamental  and  the  corpora- 
tion not  being  able  to  bind  the  plaintiff  by  a  majority  vote,  what  must 
be  the  result?  If  he  had  been  sued  for  an  assessment  upon  his  stock, 
he  might  have  claimed  that  he  was  absolved  from  all  liability  upon  the 
acceptance  of  the  amendment.  And  is  not  this  reasonable  ?  Shall  it 
be  said  that  the  legislature  and  the  corporation  have  power  to  embark 
this  corporator  in  a  speculation  to  which  he  has  never  consented?  If 
it  can  be  done  in  one  case  it  can  in  another.  But  having  paid  his  funds 
into  the  corporation,  he  has  a  right  in  chancery  to  compel  a  faithful 
performance  of  the  trust  by  the  corporation,  in  conformity  to  the  origi- 
nal charter,  and  to  keep  them  within  its  purview.  No  one  can  suppose 
that  upon  the  payment  of  his  subscription,  the  personal  identity  of  the 
plaintiff  was  merged  in  the  corporation,  or  that  he  ceased  to  have  dis- 
tinct and  independent  rights.  In  Rex  v.  Eastern  Counties  Railway 
Company,  1  Eng.  Railway  Cases  509,  the  King's  Bench  issued  a  man- 
damus, upon  the  application  of  a  minority,  against  the  company,  direct- 
ing them  to  proceed  in  the  construction  of  a  railroad  which  had  been 
chartered  between  two  points,  the  corporation  having  stopped  short  of 
one  of  the  termini,  and  voted  to  go  no  further. 


238        STEVENS   V.    RUTLAND   AND   BURLINGTON   RAILROAD   CO. 

In  the  case  before  us,  it  must  follow,  if  the  plaintiff  is  not  bound  by 
the  conjoined  effect  of  the  act  of  1850,  and  a  majority  vote  of  the  cor- 
poration, the  defendants  can  stand  on  no  better  ground,  than  a  volun- 
tary association,  who  are  about  to  go  beyond  and  aside  of  their  original 
articles,  against  the  will  of  a  minority.  This,  in  effect,  was  conceded 
in  the  argument.  There  was  nothing  improper  in  the  passage  of  the 
act  of  1850,  though  upon  the  application  of  a  portion  of  the  directors 
of  the  company,  as  stated  in  the  bill.  No  attempt  is  made  by  the 
legislature  to  impair  the  obligation  of  an}-  contract  between  themselves 
and  the  corporation,  or  to  cast  upon  the  company  an}1  new  and  addi- 
tional burthens  without  their  consent.  There  was  no  attempt  to  impair 
any  contract  arising  under  the  prior  charter,  between  the  corporation 
and  the  corporator  as  an  individual,  or  disturb  any  vested  right  in 
either.  The  act  is  not  mandatory;  and  there  is,  in  fact,  an  implied 
condition  annexed  to  it,  that  it  is  to  be  accepted  b}*  all  whose  individual 
and  corporate  interests  are  to  be  affected  by  it,  before  it  shall  become 
operative.  But  suppose  this  act  had  been  mandator}'  upon  the  corpo- 
ration and  the  several  stockholders,  to  build  this  extension  in  the  road 
within  three  years  ;  would  not  all  cry  out  against  its  palpable  injus- 
tice? Suppose,  instead  of  this,  the  legislature  had  left  it  optional  with 
the  corporation  to  accept  or  reject  the  act  of  1850,  and  had  provided, 
that  in  case  of  the  acceptance  of  the  amendment  by  the  corporation,  it 
should  bind  the  corporators  who  dissented  from  it,  or  did  not  assent 
to  it,  and  this  too,  in  their  individual  rights ;  would  there  not  be  the 
same  reason  to  cry  out  against  it?  Would  it  not,  by  its  carrying  a 
stockholder  into  an  enterprise  which  he  had  never  consented  to,  and 
changing  the  principles  of  liability  between  the  corporation  and  the 
individual  corporator  from  what  they  were  under  the  original  compact, 
impair  and  disturb  vested  rights  under  it?  I  have  no  hesitation  in  sa}r- 
ing,  that,  in  my  opinion,  it  would  be  beyond  the  pale  of  the  constitu- 
tional authority  of  the  legislature. 

In  Ellis  v.  Marshall,  2  Mass.  269,  it  was  held  that  no  man  could  be 
made,  by  act  of  legislation,  a  member  of  an  aggregate  corporation 
without  his  personal  consent ;  and  the  same  principle  would  seem  to 
apply  when  he  is  asked  to  remain  and  become  a  corporator  under  a 
supplementary  act,  to  be  attached  to  and  become  a  part  of  the  charter, 
where  that  which  it  is  proposed  to  superadd  is  vital,  and  constitutes  a 
fundamental  change  in  the  charter,  which  is  but  the  constitution  of  the 
compan}\ 

[After  discussing  various  authorities.]  The  case  of  Ware  v.  The  Grand 
Junction  Water  Company,  2  Russell  &  Mylne,  461;  s.  c.  13  Cond. 
Chan.  Rep.  126,  has  been  relied  upon  to  defeat  the  equity  of  this  bill. 
The  Vice  Chancellor  allowed  a  special  injunction,  in  the  terms  of  the 
prayer  of  the  bill ;  the  first  branch  of  which  restrained  the  company 
from  making  any  application  to  parliament,  or  taking  an}*  other  pro- 
ceedings for  obtaining  such  an  alteration  in  the  original  charter,  as  was 
desired  ;  and  the  second  branch  merely  restrained  them  from  carrying 


STEVENS  V.   RUTLAND   AND   BURLINGTON   RAILROAD   CO.        239 

those  alterations  into  execution,  independently  of  such  legislative  sanc- 
tion ;  or  from  using,  or  permitting  to  be  used,  the  seal,  name,  funds, 
credit,  and  officers  of  the  compam1,  with  a  view  to  effect  an}1  such  pur- 
pose, under  their  existing  constitution.  The  Lord  Chancellor  supported 
the  injunction  of  the  Vice  Chancellor,  so  far  as  related  to  all  such  acts 
as  were  not  authorized  by  the  then  present  constitution  of  the  com- 
pany, but  dissolved  it,  so  far  as  to  permit  the  company,  as  a  qua  cor- 
porate body,  to  apply  to  parliament  for  an  alteration  in  their  charter, 
so  as  to  authorize  the  change  desired ;  but  restrained  them  from  apply- 
ing their  corporate  funds  to  that  purpose.  The  Chancellor  proceeded 
upon  the  ground,  that  it  was  an  incidental  right  in  the  corporators,  as  a 
qua  corporation,  to  apply  for  such  a  change  ;  and  that  the  plaintiff  sub- 
scribed for  stock,  subject  to  such  a  contingency  ;  and  that  all  the  argu- 
ments touching  the  proposed  change,  were  proper  for  a  committee  of 
House  of  Lords,  or  Commons.  He  evidently  goes  upon  the  ground 
that  parliament  is  the  proper  place  to  meet  the  question  ;  and  that  if 
parliament  decide  to  make  the  alteration  proposed,  it  is  binding  upon 
all  the  corporators.  I  apprehend,  that  the  views  expressed  by  the 
Lord  Chancellor  in  that  case,  if  sound,  must  rest  upon  one  of  two 
grounds  ;  either  that  the  change  asked  for  in  the  charter  was  not  _a 
fundamental  one,  or  elseupon  the  ground  of  the  transcendent  powers 
of  a  Biitish_parliam£nt^  It  is  said  b}-  Lord  COKE,  "  that  the  power 
and  jurisdiction  of  parliament  is  so  transcendental  and  absolute,  that 
it  cannot  be  controlled  or  confined,  either  for  causes  or  persons,  within 
any  bounds;"  and  in  Steph.  Elec.  Law,  vol.  1,  p.  11,  the  doctrine  is 
maintained,  that  the  statutes  of  the  realm  are  binding  upon  all  the  sub- 
jects, unless  they  are  repugnant  to  the  laws  of  God  ;  and  that  the}'  can 
only  be  dispensed  with  by  the  same  authoritj7  of  parliament  with  which 
they  Were  made.  And,  though  other  writers  have  maintained  the  ground 
that  there  are  certain  boundaries  set  to  the  exercise  of  even  the  supreme 
powers  of  a  British  parliament,  yet  it  is  not  necessary  particularly  to 
consider  this  subject.  It  is  evident  that  Lord  BROUGHAM  in  the  case  of 
Ware  v.  The  Grand  Junction  Water  Company,  grounds  himself  upon  the 
sovereign  and  uncontrollable  powers  of  the  parliament.  The  change  in 
the  charter,  asked  for  in  that  case,  would,  under  most  if  not  all  the 
decisions  in  this  country,  be  regarded  as  a  fundamental  one.  The  argu- 
ment of  Lord  BROUGHAM,  at  least  in  one  particular,  does  not  seem  very 
sound.  He  says,  "  the  company  ought  to  have  the  power  of  obtaining 
an  alteration  in  their  constitution,  or  that  the  plaintiff  ought  to  have 
come  in  as  a  member  of  it,  under  certain  conditions  and  limitations." 
But  would  the  conditions  and  limitations  be  more  sacred  than  the  con- 
stitution itself?  and  if  parliament  might  change  the  constitution,  might 
they  not  dispense  with  the  conditions  and  limitations.  See  Amer.  Law 
Mag.  vol.  6,  p.  93.  But  with  us,  no  legislature  can  transcend  the 
bounds  of  the  constitution.  It  is  not  a  constitutional  tribunal,  to  hear 
and  settle  the  rights  of  the  parties,  as  Lord  BROUGHAM  seems  to  con- 
sider the  British  parliament.  I  apprehend,  that  in  this  state,  no  court 


240        STEVENS   V.   RUTLAND   AND   BURLINGTON   RAILROAD   CO. 

of  chancery  would  restrain  a  corporation  from  applying  to  the  legisla- 
ture for  a  fundamental  change  in  their  charter ;  and  a  sufficient  reason 
would  be.  that  if  the  additional  power  and  authority  changed  the  char- 
acter of  the  original  contract,  and  defeated  the  vested  rights  of  the 
stockholders,  the  act  would  bind  such  of  the  stockholders  only  as  con- 
sented to  the  alteration. 

[After  discussing  other  authorities.]  The  Rutland  and  Burlington 
Railroad  Company  is  but  a  private  corporation,  so  far  as  the  stockhold- 
ers are  concerned ;  though  as  it  regards  the  powers  of  the  legislature 
to  authorize  the  taking  of  private  property  for  public  use,  it  may  be 
said  to  be  a  qua  public  corporation.  The  stock  is  owned  by  individuals 
who  compose  the  corporation,  and  from  which  the}'  design  to  derive 
a  profit ;  and  the}7  manage  the  business  in  view  to  their  own  interest ; 
and  it  does  not  become  a  public  corporation  because  the  public  inter- 
ests may  be  incidentally  promoted  by  it.  In  principle  it  is  like  a  turn- 
pike, a  canal,  or  bridge  charter;  Ten  Eyck  v.  Delaware  and  Raritan 
Canal  Company,  3  Harr.  (N.  J.)  200.  I  think  it  is  obvious  beyond  a 
reasonable  doubt,  upon  principle  and  authority,  that  the  plaintiff'  is  not 
bound  in  his  individual  rights  as  a  corporator,  by  force  of  the  act  of 
1850  and  the  majority  vote  of  the  corporation,  without  his  individual 
assent.  In  the  case  of  public  corporations,  as  in  towns,  counties,  &c., 
a  different  rule  may  obtain.  The  distinction  between  private  and  pub- 
lic associations  and  corporations  has  been  well  settled  since  the  days  of 
Lord  COKE.  (Coke  Little.  181,  b.) 

In  case  of  public  associations  and  corporations  the  public  good  re- 
quires that tbe~volce_of  the  majorit}'  stioTildgovern^and hence  the  power 
is  more  favorably  expounded  than  when  created  for  private  purposes.; 
and  it  would  seem  that  public  convenience  required  the  adoption  of 
such  a  rule.  But  in  case  of  private  associations  and  corporations  it  is 
not  the  doctrine  that  a  majority  can  bind  the  minority  in  a  matter  be- 
yond and  aside  of  their  original  articles  of  association,  or  charter  of 
incorporation,  unless  it  be  by  special  agreement  giving  such  power, 
which  must  be  a  part  of  the  original  association. 

If,  in  a  case  like  the  present,  the  majority  cannot  bind  the  minority, 
it  is  plain  that  there  is  an  equity  in  this  bill,  and  that  the  defendants 
can  stand  in  no  better  situation  than  if  they  had,  by  a  vote  of  the  com- 
pany, proceeded  to  build  the  extension,  and  to  apply  the  funds  and 
credit  of  the  corporation  to  that  purpose,  without  any  additional  act  of 
the  legislature.  The  case  of  Livingstone  v.  Lynch  et  al.,  4  Johns.  Ch. 
573,  was  the  case  of  a  voluntary  association  under  the  name  of  the 
North  River  Steamboat  Company  ;  and  a  majority,  without  the  consent 
of  the  minority,  changed  by  a  vote  the  articles  of  association  and  pro- 
ceeded in  their  business  according  to  their  new  articles.  The  bill  was 
brought  by  the  plaintiff  against  the  majority  of  the  company  to  have 
the  rights  of  the  association  reinstated  on  their  former  basis ;  and  the 
chancellor  decreed  the  new  articles  null  and  void,  and  set  up  the  old 
articles,  and  enjoined  all  further  proceedings  under  the  new  articles. 


STEVENS   V.  RUTLAND  AND   BURLINGTON   RAILROAD  CO.        241 

In  the  case  of  Natusch  v.  Irving  et  al.,  which  was  also  the  case  of  a 
voluntary  association,  an  injunction  was  allowed  to  restrain  them  from 
going  into  a  business  not  within  the  scope  of  the  original  articles,  in 
pursuance  of  a  vote  of  the  majority.  And  in  that  case,  before  the 
hearing,  the  defendant  had  offered  to  pay  back  all  that  the  orator  had 
paid  into  the  company,  with  interest  from  the  date  of  the  payment, 
and  also  to  fully  indemnify  him  against  all  loss  by  the  transactions  of 
the  company  already  had  or  thereafter  to  be  had  in  the  business  which 
was  beyond  their  original  articles.  Lord  ELDON  to  this  part  of  the  case 
replies,  in  substance,  that  it  is  not  competent  for  any  number  of  per- 
sons in  a  partnership  (unless  so  provided  for)  formed  for  specified  pur- 
poses, to  effect  that  formation  b}'  calling  upon  some  of  their  partners 
to  receive  back  their  capital  stock  and  interest,  and  quit  the  concern, 
which,  in  effect,  would  be  merel}'  compelling  them  to  retire  upon  such 
terms  as  should  be  dictated  to  them,  so  as  to  form  a  new  company ; 
and  that  it  is  the  right  of  a  partner  to  hold  his  associates  to  the  speci- 
fied purposes  whilst  the  partnership  continues,  and  not  to  rest  upon 
indemnities  with  respect  to  what  he  had  not  contracted  to  engage  in ; 
and  that  a  partner  cannot  be  compelled  to  part  with  his  shares,  though 
for  double  what  he  originallj'  gave  for  them ;  and  that  it  may  be  his 
principal  reason  for  keeping  them,  to  have  the  partnership  carried  on 
according  to  the  original  contract.  This  doctrine  of  Lord  Chancellor 
ELDON  necessarily  grows  out  of  the  doctrine  that  it  is  the  business  of 
courts  of  justice  to  enforce  the  contracts  of  parties,  not  to  make  them. 
To  give  to^ourts  not  only  the  power  to  en  force,  but  also  the  power  to 
make,  or  eveoT  modify  in  one  iota  a  contract  fairly  made,  would  be  the 
rankest  despotism. 

I  am  not  ready  to  suppose  the  directors  in  procuring  the  act  of  1850 
to  be  passed,  or  the  corporation  in  accepting  that  act,  acted  in  bad 
faith  to  any  of  the  old  stockholders  ;  but  doubtless  they  were  governed 
by  the  most  honorable  motives  and  meant  it  for  the  best  good  of  all 
concerned,  notwithstanding  the  allegations  in  the  bill.  The  case  is  not 
put  at  all  upon  the  allegations  in  the  bill  imputing  bad  faith  to  the 
directors  in  obtaining  the  act  of  1850.  If  it  was,  it  would  be  very 
material  to  the  merits  of  the  question  that  the  bill  should  be  answered. 
The  ground  assumed  is,  that  this  corporation  had  the  funds  of  the 
original  stockholders  for  an  object  distinctly  defined  in  the  original 
charter,  and  that  they  cannot  be  allowed  to  apply  them  to  any  other 
purpose  whatever,  without  the  consent  of  the  stockholders,  and  that  to 
do  it  would  be  a  breach  of  trust. 

In  regard  to  the  expediency  of  bringing  this  bill,  the  chancellor  can- 
not, and  has  no  right  to  judge.  The  orator  has  the  constitutional  and 
sole  right  of  determining  this  matter  ;  and  if  he  thinks  it  expedient,  we 
must  acquiesce  in  it;  and  no  plea  of  the  public  good  or  inequality 
of  interests  involved  can  justify  the  chancellor  in  denying  to  the  orator 
a  right  which  is  clearly  accorded  to  him  by  well  established  chancery 
principles.  The  public  good  is  best  promoted  by  an  impartial  adminis- 

16 


242        STEVENS   V.   RUTLAND   AND   BURLINGTON   RAILROAD   CO. 

tration  of  justice  according  to  the  right  of  the  case ;  and  courts  can- 
not measure  the  equality  or  inequality  of  interests  in  the  litigant  parties 
and  make  that  a  basis  for  a  decision,  notwithstanding  what  has  been 
urged  in  the  argument. 

Where  it  is  clearly  shown  that  a  corporation  is  about  to  exceed  its 
powers,  and  to  apply  their  funds  or  credit  to  some  object  beyond  their 
authority,  it  would,  if  the  purpose  of  the  corporation  was  carried  out, 
constitute  a  breach  of  trust ;  and  a  court  of  equity  cannot  refuse  to 
give  relief  by  injunction.  See  Agar  v.  The  Regent's  Canal  Company, 
Cooper's  Eq.  77  ;  The  River  Dun  Navigation  Company  v.  North  Mid- 
land Railway  Company,  1  Eng.  Railway  Cases  153-4.  The  case  from 
the  1st  vol.  of  Railway  Cases  was  before  the  Lord  Chancellor,  and  he 
uses  this  language:  "  If  these  companies  go  beyond  the  powers  which 
the  legislature  has  given  them,  and  in  a  mistaken  exercise  of  those 
powers  interfere  with  the  property  of  individuals,  this  court  is  bound  to 
interfere ;  and  that  was  Lord  ELDON'S  ground  in  Agar  v.  The  Regent's 
Canal  Compan}'."  The  Lord  Chancellor  further  adds  :  "I  am  not  at 
libertj-  (even  if  I  were  in  the  least  disposed,  which  I  am  not,)  to  with- 
hold the  jurisdiction  of  this  court,  as  exercised  in  the  case  of  Agar  v. 
The  Regent's  Canal  Company."  In  that  case  Lord  ELDON  proceeded 
simpry  on  the  ground  that  it  was  necessaiy  to  exercise  this  jurisdiction 
of  chancery  for  the  purpose  of  keeping  these  companies  within  the 
powers  which  the  acts  give  them.  And  it  is  added,  "  and  a  most 
wholesome  exercise  of  the  jurisdiction  it  is ;  because,  great  as  the 
powers  necessarily  are,  to  enable  the  companies  to  carry  into  effect 
works  of  this  magnitude,  it  would  be  most  prejudicial  to  the  interests 
of  all  persons  with  whose  property  they  interfere  if  there  was  not  a 
jurisdiction  continually  open  and  read}"  to  exercise  its  power  to  keep 
them  within  their  legitimate  limits."  It  cannot  justify  the  chancellor 
in  refusing  to  exercise  the  jurisdiction  of  chancery  because  the  defend- 
ants may  claim  the  right  to  proceed  under  color  of  the  act  of  1850.  It 
is  a  settled  principle  that  the  circumstance  of  the  defendant's  acting 
under  color  of  law,  simpl}',  can  form  no  justification.  The  question, 
after  all,  will  be :  does  the  law  justify  the  act  which  is  being  done,  or 
threatened  to  be  done?  Osborn  v.  The  Bank  of  the  United  States,  9 
Wheaton,  738.  If  a  law  is  unconstitutional  it  can  give  no  authority. 
If  the  power  it  confers  is  abused  or  exceeded,  the  person  acting  under 
the  color  of  law  is  a  wrong  doer.  In  the  case  at  bar  the  corporation 
had  no  power  to  build  thejextensjaDatB^cr  thoir  -original  charter  ;  and 
the  act  of  1850  is  not  binding  upon  the  orator  without  his  consent. 

The  injunction  must  therefcmTbe  allowed,  but  onljr  so  far  as  to  re- 
strain the  defendants  until  the  further  order  of  the  chancellor  from 
applying  the  present  funds  of  the  corporation,  or  their  income  from 
the  present  road,  either  directly  or  indirectly  to  the  purpose  of  building 
said  extension  in  said  road,  or  to  pay  land  damages  and  other  expenses 
which  may  be  contingent  upon  the  building  of  it;  and  also  from  using 
or  pledging,  directly  or  indirectly,  the  credit  of  the  corporation  in  effect- 


TREADWELL  V.   SALISBURY   MANUFACTURING   CO.  243 

ing  the  object  of  the  extension ;  and  at  the  same  time  the  company 
will  be  left  at  liberty  to  build  the  extension  with  any  new  funds  which 
the}'  may  see  fit  to  obtain  for  that  specific  object. 

Though  this  is  but  an  interlocutor}'  decree,  made  upon  the  plaintiffs 
equitable  rights  as  disclosed  in  the  bill,  still  it  having  been  twice  argued, 
and  it  being  a  case  of  considerable  interest  and  importance,  I  have 
deemed  it  proper  to  publish,  somewhat  at  length,  the  grounds  of  my 
opinion.  "  To  err  is  human  ; "  and  if,  upon  more  mature  considera- 
tion, the  conclusion  of  my  own  mind  shall  l»e  found  to  be  unsound,  and 
not  in  accordance  with  principle  and  authority,  I  rejoice  that  they  may 
be  corrected  by  a  superior  tribunal.1 

After  the  above  decision  was  announced,  and  before  the  injunction 
was  issued,  the  defendants  proposed  to  file  bonds  to  indemnify  the  plain- 
tiff against  all  damages  which  he  might  sustain  by  reason  of  the  exten- 
sion ;  upon  which  the  chancellor  suggested,  that  he  did  not  deem  it 
competent  for  him  to  make  contracts  for  the  parties ;  and  that  upon  the 
authority  of  the  case  of  Natusch  v.  Irving  et  al.,  it  could  make  no  dif- 
ference, if  filed,  in  the  result. 


TREADWELL  v.  SALISBURY  MANUFACTURING  CO. 

1856.     7  Gray,  393* 

BILL  IN  EQUITY,  by  the  executors  and  trustees  under  the  will  of 
Thomas  Cordis,  against  the  Salisbury  Manufacturing  Company  and 
their  directors.  Plaintiffs  held  forty  shares  in  the  compan)',  as  part  of 
the  residue  of  testator's  estate  bequeathed  to  them  in  trust.  The  bill 
averred,  among  other  things,  that,  at  a  meeting  of  stockholders,  it  was, 
voted  bv  a  majority,  but  against  the  wishes  of  a  minority  and  against^ 

jthejprotest  of  one  *>f  *hp  plaintiff1^  f,hat  the  directors  have  aiithority_to 
sell  all  the  real  property  of  the  corporation  and  all  the  personal  property . 
connected  with  the  manufacture  of  goods  :    provided  that,  in  case  of 

jale_to^a  new  company,  the  stockholders  in  this  company  should  have  a 
right  to  takejinjnterest  in  the  new  one,  in  proportion  to  their  _resp£C- 

't\ve  interests TTnthis.,  The  bill  also  averred,  that  it  was  Jurther  voted, 
that,  ui^case  of  jsale,  tlie~7li rectors  should  be  aiithorized_to^close  tlie 
alffairgof  the  company  and  to  take  necessary  measures  for  that  pur- 
pose^.  The  bill  further  averred,  that  the  directors  threatened  and 
intended  to  sell  said  property  to  a  new  corporation  called  the  Salisbury 
Mills,  and  to  take  in  payment  shares  in  the  new  com  pan)'  at  par,  and 
divide  them  proportionately  among  the  stockholders  of  the  old  company, 
and  surrender  and  give  up  their  charter  and  franchise. 

1  The  case  was  not  carried  to  a  higher  court.  —  ED. 

2  Statement  abridged.     Argument  omitted.     Only  so  much  of  opinion  given  as 
relates  to  one  point  —  Ei>. 


244  TREADWELL   V.   SALISBURY   MANUFACTURING   CO. 

The  answer  alleged,  among  other  things,  that  the  defendants  were 
negotiating  with  the  Salisbury  Mills  fora  sale  of  the  property  at  a  price 
of  $250,000,  payable  in  stock  of  that  corporation  ;  also  that  the  defend- 
ants and  the  Salisbury  Mills  were  desirous  to  admit  every  stockholder 
in  the  old  corporation  to  take  and  hold  an  interest  in  the  new  one,  to 
any  extent  he  pleased,  but  that  that  was  and  would  be  left  optional 
with  him.  The  answer  also  alleged  that  it  was  the  intention  _^f  t.l»R 
^defeiijLJants  to  make  a  sale  of  the  property  for  jjiejKjrrjOge  of  paying  the 
debts  of  the  corporation,  and  ultimately  to  wind  up  their  affairs,  and  to 
distribute_the_stock  obtained  among  the  individuaH-nembcrs,  if  they 
would  accept  it,j)thcrwise  to  reduce  it  to  cash  and  distribute  its  value 
amung_such  members.. 

A  hearing  was  had  before  BIG  BLOW,  J.,  who  reported  the  case  to  the 
full  court.  There  was  a  conflict  of  testimony  as  to  the  adequacy  of  the 
price  named.  Defendants  introduced  testimony  as  to  the  affairs  of  the 
corporation,  tending  to  show  that  it  was  advisable  to  sell  the  property 
and  close  the  business. 

R.  Fletcher  &  J.  J.  Clarke,  for  plaintiffs. 

R.  Ckoate,  for  defendants. 

BIGELOW,  J.  [The  Court  held,  that  the  plaintiffs'  case  did  not  come 
within  the  limits  of  the  "  present1  chancery  jurisdiction"  of  the  Court. 
The  opinion  then  proceeds  as  follows :] 

The  views  which  we  have  taken  dispose  of  the  whole  case.  It  is 
therefore  unnecessary  to  go  at  large  into  a  consideration  of  the  other 
branch  of  the  cause,  which  was  fully  and  elaborately  discussed  at  the 
bar.  But  we  entertain  no  doubt  of  the  right  of  a  corporation^  estab- 
lished solely  for  trading  and  manufacturing  purposes,  by  a  vote  of  the 
majority  of  their  stockholders,  to  wind  up  their  affairs  and  close  their 
business,  if  in  tbe  exercise  of  a,  sound  discretion  they  deem  it  expedient 
so  to  (k>^  At  common  law,  the  right  of  corporations,  acting_by  a  ma; 
jprity_of_their  stockholders,  to  sell  their  proj>erty  i»  absolute,  anfl  ig  not- 
limited  as  to  objects,  circumstances  or  quantity.  Angell  &  Ames  on 
Corp.  §  127  &  seq.  2  Kent  Com.  (6th  ed.)  280.  Mayor  &c.  of  Col- 
chester v.  Lowton,  \  Ves.  &  B.  226,  240,  244.  Hinney's  case,  2  Bland, 
142.  To  this  general  rule  there  are  many  exceptions,  arising  from  the 
nature  of  particular  ftorpomfinns,  thp  purposes  for  whifh  they  were 
created,  and  the  duties  and  liabilities  imposed  on  them  _  by  theU- 
charters.  _  Corporations  established  for  objects  quasi  public,  such  as 
railway,  canal  and  turnpike  corporations,  to  which  the  right  of  eminent 
domain  and  other  large  privileges  are  granted  in  order  to  enable  them 
to  accommodate  the  public,  ma}'  fall  within  the  exception  ;  as  also 
charitable  and  religious  bodies,  in  the  administration  of  whose  affairs 
the  communit}'  or  some  portion  of  it  has  an  interest  to  see  that  their 
corporate  duties  are  properly  discharged.  Such  corporations  ma}-  per- 
haps be  restrained  from  alienating  their  property,  and  compelled  to 

1  The  Supreme  Court  ol  Massachusetts  did  not  at  this  time  have  full  equity  juris- 
diction.—  ED. 


TREADWELL   V.   SALISBURY  MANUFACTURING   CO.  245 

appropriate  it  to  specific  uses,  by  mandamus  or  other  proper  process. 
But  it  is  not  so  with  corporations  of  a  private  character,  established 
solely  for  trading  and  manufacturing  purposes.  Neither  the  public  nor 
the  legislature  have  any  direct  interest  in  their  business  or  its  manage- 
ment. These  are  committed  solely  to  the  stockholders,  who  have  a 
pecuniar}-  stake  in  the  proper  conduct  of  their  affairs.  By  accepting  a 
charter,  the)-  do  not  undertake  to  carry  on  the  business  for  which  they 
are  incorporated,  indefinitely,  and  without  any  regard  to  the  condition 
of  their  corporate  property.  Public  policy  does  not  require  them  to  go_ 
on  at  a  loss.  On  the  contrary,  it  would  seem  very  clearly  for  the  public 
weffare,  as  well  as  for  the  interest  of  the  stockholders,  that  they  should 
cease  to  transact  business  as  soon  as,  in  the  exercise  of  a  sound  judg- 
ment, it  is  found  that  it  cannot  be  prudently  continued. 

If  this  be  not  so,  we  do  not  see  that  any  limit  could  be  put  to  the 
business  of  a  trading  corporation,  short  of  the  entire  loss  or  destruction 
of  the  corporate  property.  The  stockholders  could  be  compelled  to 
carry  it  on  until  it  came  to  actual  insolvency.  Such  a  doctrine  is  with- 
out any  support  in  reason  or  authority.  The  case  of  Ward  v.  Society 
of  Attorneys,  1  Collyer,  370,  cited  by  the  plaintiffs,  does  not  support 
it.  They  were  not  a  trading  corporation  ;  nor  were  their  affairs  in  an 
embarrassed  condition.  It  was  the  case  of  the  majority  of  a  corporation, 
attempting  to  surrender  the  old  charter,  and  to  pervert  the  corporate 
funds  to  a  different  purpose,  by  passing  them  over  to  a  new  association. 
Besides,  the  questions  raised  in  the  case  were  not  finally  determined  by 
the  vice  chancellor.  The)-  were  only  considered  so  far  as  it  was  neces- 
sary to  decide  the  question  of  granting  an  injunction  preliminary  to  the 
hearing. 

Upon  the  facts  found  in  the  case  before  us,  we  see  no  reason  to  doubt 
that  the  vote  of  the  majority  of  the  stockholders,  for  the  sale  of  the  cor- 
porate property,  and  the  closing  of  the  business  of  the  corporation,  was 
justified  by  the  condition  of  their  affairs.  Without  available  capital, 
and  without  the  means  of  procuring  it,  the  further  prosecution  of  their 
business  would  be  unprofitable,  if  not  impracticable.  Under  these  cir- 
cumstances  it  was  in  furtherance  of  the  purposes  of  the  corporation,  to 
"pay  theirdebts,  close  their  affairs  and  settle  with  their  stockholders  on 
jernis  most  advalitageoiis  to  them.  ISargentv.  Webster,  13  Met.  504. 

Nor  can  we  see  anything  in  the  proposed  sale  to  a  new  corporation, 
and  the  receipt  of  their  stock  in  payment,  which  makes  the  transaction 
illegal.  It  is  not  a  sale  by  a  trustee  to  himself,  for  his  own  benefit; 
but  it  is  a  sale  to  another  corporation  for  the  benefit  and  with  the  con- 
sent of  the  cestuis  que  trust,  the  old  stockholders.  The  new  stockjs^  _ 
taken_iti  lieu  of  money,  to  be  distributed  among_those  stockholders 
who  Me  willing  to  receive  itT  or  to  be  converted  into  money  by  those 
who  do  not  desire  to  retain  it.  Being  done  fairly  and  not  collusively, 
as  a  mode  of  payment  for  the  property  of  the  corporation,  that  transac- 
tion is  not  open  to  valid  objection  by  a  minority  of  the  stockholders. 
Hodges  v.  New  England  Screw  Co.  1  R.  I.  347. 


246  TAYLOR   V.    EARLE. 

It  was  urged  b}-  the  plaintiffs  that  the  common  law  right  of  a  corpora- 
tion to  sell  their  property  and  close  their  business,  had  been  taken  away 
by  St.  1852,  c.  55.  But  we  do  not  think  that  such  is  its  true  interpre- 
tation. It  is  not  restrictive  in  its  terms,  but  only  permissive.  It  was 
intended  to  provide  a  mode  in  which  the  charter  of  a  corporation  might 
be  dissolved  without  a  resort  to  the  legislature.  But  it  did  not  take 
away  the  right  of  a  corporation  to  proceed  in  the  sale  of  their  property 
preparatory  to  a  surrender  of  their  charter,  which  is  all  that  the  defend- 
ants undertook  to  do.  Bill  dismissed. 


TAYLOR  v.  EARLE,  IMPLEADED  WITH  BURLINGTON  COTTON 

MILLS    ET    ALS. 
1876.     15  New  York  Supreme  Court  (8  Hun),  1. 

APPEAL  from  a  judgment  of  the  Special  Term  dismissing  plaintiff's 
complaint. 

The  plaintiff  was  a  stockholder  in  the  Burlington  Cotton  Mills,  a 
manufacturing  corporation  organized  under  the  general  laws  of  this 
State  about  August  14,  1866,  whose  principal  office  and  place  of  busi- 
ness was  in  the  cit}*  of  New  York.  The  corporation  about  the  time  of 
its  organization  purchased  real  estate,  mills  thereon,  machinery  and 
water  privileges  at  Burlington,  in  the  State  of  Vermont.  About  Janu- 
ary 9,  1875,  at  a  meeting  of  the  stockholders,  it  was  resolved  by  the 
holders  of  a  majorit}'  of  the  stock  to  sell  the  propert^v  of  the  corporation 
to  the  Burlington  Cotton  Mills  Company,  a  corporation  created  b}-  the 
laws  of  Vermont,  and  take  in  payment  thereof  1,747  shares  of  the  stock 
of  the  latter  compan}-,  and  the  property  of  the  former  was  thereafter 
conveyed  to  the  latter  corporation  for  and  in  consideration  of  such 
stock,  and  for  no  other  consideration.  At  the  time  of  the  resolution 
and  conveyance,  the  defendant  Jonathan  Earle  was  president,  and  the 
defendant  George  B.  Earle  treasurer  of  both  corporations,  and  held  a 
majority  of  the  stock  of  the  Burlington  Cotton  Mills.  The  plaintiff 
never  consented  nor  assented  to  the  resolution  to  sell,  nor  to  the  acts 
done  under  such  resolution. 

For  a  long  time  prior  to  January,  1875,  no  report  had  been  made  to 
the  stockholders  of  the  Burlington  Cotton  Mills,  nor  of  its  financial 
affairs.  A  demand  was  made  upon  the  treasurer,  George  B.  Earle, 
that  he  furnish  such  report.  After  such  demand,  and  before  January 
9,  1875,  the  defendants  Earle  and  others  of  the  Vermont  corporation 
were  a  majority  of  the  directors  of  the  New  York  compan}-.  This 
action  was  brought  by  the  plaintiff  as  a  stockholder  of  the  Burlington 
Cotton  Mills  (the  New  York  corporation),  holding  100  out  of  1,000 
shares  of  its  stock,  to  set  aside  the  conveyance  aforesaid  as  illegal  and 


TAYLOR   V.    EARLE.  247 

void,  and  for  other  relief;  the  Burlington  Cotton  Mills  having  refused 
to  bring  the  action. 

E.  Sprout,  for  the  appellant. 

Isaac  L.  Miller,  for  the  respondents. 
BARNARD,  P.  J- : 

I  think  the  court  erred  in  dismissing  the  plaintiffs  complaint.  He 
was  a  stockholder  in  the  Burlington  Cotton  Mills,  a  New  York 
corporation. 

By  a  vote  of  a  large  majority  of  the  stockholders  (not  including  plain- 
tiff), this  corporation  sold  all  its  property,  real  and  personal,  except 
cash  in  hand,  mills  and  franchises,  to  the  Burlington  Cotton  Mill  Com- 
pany, a  Vermont  corporation,  and  took  in  payment  1,747  shares  of  this 
Vermont  corporation. 

The  Burlington  CoHon  Mills,  on  plaintiff's  request,  refuse  to  bring 
this  action,  and  it  is  well  settled  that  in  such  a  case  a  stockholder  may 
assert  his  own  rights,  making  the  corporation  a  defendant. 

I  think  it  quite  clear  that  plaintiff  had  a  right  to  relief. 

Either  the  transfer  was  void  as  ultra  vires,  or  the  property  received 
in_gome  way  was  liable  to  the  debts  of  the  Burlington  Cotton  Mills,  and_ 
after  their  payment  to  distribution  among  those  of  the  stockholders  who 
did_not_wjsh  to  take  a  proportion  of  stock  in  the  Vermont  company. 

The  plaintiff  cannot,  hp  fnivprl  tn  fgfrp  the  stock  of  the  Burlington 
Cotton  Mill  Company  without  his  own  consent..  The  facts  are  all 
averred  in  his  complaint,  and  he  is  entitled  to  an}*  relief  warranted  by 
the  facts,  and  not  alone  to  that  for  which  he  has  asked. 

I  am  of  opinion,  however,  that  the  whole  scheme  of  the  transfer  and 
its  execution  was  illegal. 

There  is  no  power  given  by  the  acts  under  which  the  Burlington 
Cotton  Mills  were  incorporated  to  transfer  all  the  property  of  a  corpo- 
ration, and  then  terminate  its  existence,  and  take  in  payment  stock  in 
a  company  carrying  on  the  same  business,  with  a  different  name,  charter 
and  stockholders,  and  being  a  foreign  corporation. 

The  corporation,  by  the  New  York  law,  could  increase  or  diminish 
.  its  stock,  or  extend  its  business  to  other  objects,  but  that  falls  far  short, 
I  think,  of  the  sweeping  power  exercised  on  this  occasion.  The  sale 
was  not  real.  It  was  a  mere  form  to  turn  a  New  York  corporation 
inlo  a  Vermont  one,  and  thus  escape  the  scrutiny  into  the  affairs  of  the 
company  permitted  by  the  New  York  law  to  the  stockholders. 

Nojnajoritj-  can  bind  the  non-consenting  minority  to  this.  He  be- 
camejTlstockholder  under  the  security  of  the  New  York  law,  and,  when 
Ifiat  is  taken  from  him,  at  least  he  should  have  the  property  of  his  cor- 
poration applied  to  the  payment  of  its  debts,  and  the  surplus,  if  an}-, 
divided  among  the  stockholders. 

I  think  the  judgment  should  be  reversed,  and  a  new  trial  granted, 
costs  to  abide  event. 

GILBERT,  J. ,  concurred  •,  DYKMAN,  J.,  not  sitting. 

Judgment  reversed,  and  new  trial  granted,  costs  to  abide  event. 


248  COMMONWEALTH   V.   PHCENIX   IRON   CO. 


CHAPTER  VIII. 

STOCKHOLDER'S  RIGHT  TO  BRING  SUIT  IN  REFERENCE  TO 
CORPORATE  MANAGEMENT,  OR  TO  PROTECT  CORPORATE 
INTERESTS.1  STOCKHOLDER'S  RIGHT  TO  INSPECT  COR- 
PORATE RECORDS. 


COMMONWEALTH,  EX  REL.  SELLERS  v.  PHCENIX  IRON  CO. 

1884.     105  Pa.  State,  111.2 

ERROR  to  the  Court  of  Common  Pleas  No.  2,  of  Philadelphia 
County. 

Petition  by  George  H.  Sellers  for  a  writ  of  alternative  mandamus 
against  the  Phoenix  Iron  Co.  and  its  officers,  commanding  them 
at  reasonable  times  to  give  the  petitioner  and  his  clerks  access  to  cer- 
tain books  and  papers  of  the  said  company.  The  facts  sufficiently 
appear  in  the  opinion.  The  Court  of  Common  Pleas  granted  a  rule 
upon  respondents  to  show  cause  why  a  writ  of  alternative  mandamus 
should  not  issue.  Subsequently,  after  hearing,  the  Court  discharged 
the  rule.  Petitioner  brought  error. 

Samuel  W.  Pennypacker  and  John  G.  Johnson,  for  plaintiff  in 
error. 

R.  C.  McMurtrie  and  Wayne  Mac  Veagh,  for  defendants  in  error. 

TRUNKET,  J.  The  right  of  shareholders  in  large  partnerships  and 
companies,  to  inspect  accounts,  is  usually  qualified  by  express  agree- 
ment ;  but  it  requires  no  express  agreement  to  confer  the  right,  for  that 
is  a  consequence  of  partnership.  If  a  compan}^  deed  of  settlement 
provides  for  the  inspection  of  its  accounts  by  its  shareholders  at  certain 
times  and  subject  to  certain  restrictions,  it  seems  they  are  not  entitled 
to  inspect  the  accounts  otherwise  :  Lindley  on  Part.,  809.  This  writer 
also  says  that  the  right  of  inspection  of  the  accounts  of  such  companies 
is  necessarily  limited,  for  if  every  shareholder  were  at  libert}7  to  ex- 
amine the  accounts  whenever  he  desired  to  do  so,  it  would  be  imprac- 
ticable even  to  keep  them  or  make  them  up  in  a  proper  manner ;  and 
he  apprehends  that  when  there  is  no  agreement  to  the  contrarj*,  the 

1  See  Chapter,  post,  as  to  Voting  Rights  of  Stockholders.  —  ED. 

2  Statement  abridged.    Arguments  omitted.  —  ED. 


COMMONWEALTH   V.   PHOZNIX   IRON   CO.  249 

shareholders  are  entitled  to  have  them  produced  at  their  meetings  and 
to  appoint  persons  to  inspect  and  examine  them.  Perhaps  nobody 
would  question  the  correctness  of  these  views.  But  they  do  not  reach 
the  case  of  a  minority,  powerless  by  vote  to  call  for  production  of  the 
books,  or  to  make  appointment  of  persons  to  inspect.  In  the  absence 
of  agreementjDip''y  sbni-plmUlpr  has  the  right  to  inspect  the  accounts, 
a  right  subject  to  the  necessities  of  the  company's  business,  yet  exist 
ing.  It  hasTTevernbeen  asserted  that  a  partner  in  a  large  company, 
under  pretence  of  inconvenience,  can  at  all  times  be  lawfully  denied 
inspection  of  its  accounts,  unless  the  denial  rests  upon  his  own  agree- 
ment. For  proper  purposes  and  at  reasonable  times  the  law  gives  him 
the  right,  even  if  its  exercise  be  inconvenient  to  the  book-keepers  and 
managers  of  the  partnership  business. 

Unless  the  charter  provides  otherwise,  a  shareholder  in  a  trading 
corporation  has  the  right  to  inspect  its  books  and  papers  and  to  take 
minutes  from  them,  for_a  defini*p  qn^  pmpor  purpose,  at  reasonable 
times.  The  doctrine  of  the  law  is,  that  the  books  and  papers  of  the 
corporation,  though  of  necessity  kept  in  some  one  hand,  are  the  com- 
mon property  of  all  the  stockholders :  Angell  &  Ames' Corp.,  §  681 ;  Red- 
field  on  Railways,  227 ;  Grant  on  Corp.,  311  ;  2  Phillips  on  Evi.,  313  ; 
Martin  v.  Bienville  Oil  Works,  28  Lou.  Ann.  Rep.,  204.  Cases  may 
have  been  rare  in  which  it  was  held  that  a  shareholder  was  entitled  to 
an  extraordinary  remedial  writ  for  the  enforcement  of  his  right  to 
inspect  the  books,  but  that  does  not  evidence  non-existence  of  the 
right.  Text  books  and  dicta  of  courts  seem  to  have  treated  the  right 
of  shareholders  in  joint  stock  corporations,  to  inspect  the  accounts  and 
papers,  as  similar  to  that  of  members  in  large  partnerships  where 
managers  are  appointed  to  transact  the  business.  The  necessary  limit- 
ations  practical!}*  prevent  exercise  of  the  right  for  speculative  purposes, 
~or  gratification  of  curiosity ;  if  every  shareliold_er_cguld_  inspect  for  such 
purposes,  iJThiS  Own  will,  the  business^  of  most  corporations  would  be 
greatly  impeded.  In  Rex  v.  Merchant  Tailors'  Co.,  2  Barn.  &  Ad., 
115,  TAUNTON,  J.,  said:  "  There  is  no  express  rule  that  to  warrant  an 
application  to  inspect  corporation  documents  there  must  actual!}*  have 
been  a  suit  instituted  ;  but  it  is  necessary  that  there  should  be  some 
particular  matter  in  dispute,  between  members,  or  between  the  cor- 
poration  and  individuals  in  it ;  there  must  be  some  controversy,  some 
specific  purpose  in  respect  of  which  the  examination  becomes  neces- 
sary." This  concisely  puts  the  circumstances  in  which  the  shareholder 
ma}*  have  specific  remedy,  _if  refused  permission  to  inspect  corporation 
documents  and  books :  but  if  the  right  itself  were  not  clear,  he  could 
not  have  that  remedy  at  all. 

It  was  conceded  at  the  argument  that  a  mandamus  may  be  issued  to 
a  private  corporation  to  compel  the  exercise  of  a  franchise,  or  to 
restore  an  evicted  person  to  his  office  or  membership,  or  to  compel  per- 
formance of  a  duty  imposed  on  a  corporate  official,  expressly  or  by 
implication.  The  old  rule  was  that  the  writ  was  only  to  be  issued 


250 


COMMONWEALTH   V.   PHOZXIX   IRON   CO. 


•Je- 


in  cases  of  public  interest  or  having  some  relation  to  public  officers  or 
rights:  Tapping  on  Mand.,  12,  97.  But  the  tendenc3T  in  modern  times 
is  to  grant  a  mandamus  in  certain  cases  where  formerly  it  would  have 
been  refused  ;  and  the  prerogative  writ  will  go  to  compel  "  the  produc- 
tion to  a  shareholder,  for  a  proper  purpose  and  at  a  proper  time  of  such 
books  as  he  has  aright  to  inspect:"  Lindley  on  Part.,  1037.  And 
this  was  said  of  the  writ  and  cases  without  the  common  law  procedure 
Act  of  1854,  plainly  showing  that  the  distinguished  author  was  of  opin- 
ion that  the  right  of  a  shareholder  to  inspect  the  books  of  the  corpora- 
tion of  which  he  is  a  member,  exists  at  common  law,  and  in  a  proper 
case  may  be  enforced  by  mandamus.  "  Corporators  have  alwa3*s,  on 
showing  a  good  reason,  though  not  for  curiosity's  sake,  a  right  of  access 
to,  and  inspection  of,  all  the  books,  muniments  and  papers  belonging 
to  the  corporation,  and  if  this  general  right  be  denied  or  obstructed,  a 
mandamus  to  inspect  may  be  had  on  proof  of  the  refusal  of  the  right 
to,  and  reason  for  the  inspection  :  "  Grant  on  Corp.,  311  ;  see  Angell 
&  Ames  on  Corp.,  §  707  ;  High  on  Extra.  L.  Rem.,  §  308.  In  Rex  v. 
Merchant  Tailors'  Co.,  supra,  decided  half  a  century  ago,  it  was  held 
that  the  court  will  not  grant  an  application  by  members  of  a  corporate 
body,  for  a  mandamus  to  inspect  the  documents  of  the  corporation,  un- 
less it  be  shown  that  such  inspection  is  necessary  with  reference  to 
some  specific  dispute  or  question  depending,  in  which  the  parties 
applying  are  interested  ;  and  the  inspection  then  will  only  be  granted 
to  such  extent  as  may  be  necessa^  for  the  particular  occasion  ;  and  the 
writ  was  refused  because  the  applicants  merety  alleged  grounds  on 
which  they  believed  the  affairs  of  the  corporation  were  improperly  con- 
ducted, and  the  officers  unduhy  chosen,  and  complained  of  mismanage- 
ment in  some  particular  instances  not  affecting  themselves,  or  any 
matter  then  in  dispute.  The  doctrine  declared  in  that  case  is  the 
foundation  of  the  rule  in  the  text  books,  and  the  writ  was  refused 
solely  on  the  insufficienc}7  of  the  affidavits  to  make  a  case  within  the 
rule.  Thirt}'  years  afterwards,  CROMPTON,  J.,  referring  to  Rex  v. 
Merchant  Tailors'  Co.,  as  a  leading  case,  said  :  "I  take  the  result  of 
the  cases  to  be  that  a  mandamus  may  go  against  a  corporation  at  the 
instance  of  a  member  of  the  corporation  to  inspect  and  see  whether  he 
can  raise  a  particular  case  in  his  favor  by  examining  the  books.  It 
must  in  my  view  be  a  case  with  reference  to  some  defined,  distinct 
dispute,  as  to  which  it  appears  that  it  might  be  to  his  advantage  to  see 
the  minutes  of  the  corporation."  After  noting  the  contention  of  the 
compan}'  that  a  remedy  existed  by  quo  warranto,  he  adds  :  "The  appli- 
cant who  has  no  access  to  the  documents  of  the  corporation,  would  be 
able  to  make  an  affidavit  of  belief  only  as  to  the  existence  of  the  custom 
on  which  he  founds  his  claim,  while  the  corporation,  who  hold  all  the 
books,  might  set  forth  the  entries  making  against  the  existence  of  the 
custom,  and  thus  from  want  of  access  to  the  books  the  party  might  be 
prevented  from  getting  his  rule."  A  mandamus  was  awarded  for  the 
applicant  and  his  attorney  to  inspect  the  minutes  of  the  corporation 


COMMONWEALTH  V.   PHCENIX   IRON   CO.  251 

as  to  the  elections  of  the  assistants,  that  being  the  matter  in  dispute. 
Burton  v.  The  Saddlers'  Co ,  31  Law  Jour.  R.,  62.  In  the  late  case  of 
Martin  y.  Bienville  Oil  Works,  28  Lou.  Ann.  R.,  204,  it  was  ruled  that 
a  stockholder  of  the  corporation  has  a  right  to  know  how  its  affairs  are 
conducted ;  that  the  board  of  directors,  authorized  by  the  charter  to 
exercise  all  the  powers  of  the  corporation,  could  not  rightfully  deprive 
him  of  personal  inspection  of  the  books  and  papers  that  he  might  learn 
the  condition  and  affairs  of  the  company  so  that  he  could  vote  under- 
standingly  at  a  meeting  of  the  stockholders ;  and  upon  showing  that 
the  directors  had  concealed  from  him  the  facts,  he  is  entitled  to  relief 
by  mandamus.  One  of  the  judges,  on  the  ground  that  a  stockholder's 
right  to  inspect  is  strictly  personal,  dissented  from  so  much  of  the 
order  as  allowed  inspection  by  agent  —  upon  the  main  question  there 
was  no  division.  This  case  may  go  farther  than  is  necessary  for  pro- 
tection of  the  interests  of  individual  shareholders,  and  is  not  cited  for 
unqualifled  approval.  Were  it  established  that  ever}-  stockholder  may 
have  a  mandamus  to  enforce  his  right  of  inspection  for  the  mere  pur- 
pose of  enabling  him  to  vote  understandingly,  where  the  stockholders 
are  numerous,  there  would  likely  result  great  inconvenience  and  hin- 
drance in  the  conduct  of  the  business  of  the  corporation.  The  interests 
of  all  the  corporators  require  that  the  writ  shall  not  go  at  the  caprice 
of  the  curious  or  suspicious.  It  would  seem  from  the  weight  of  author- 
ity, and  in  reason,  that  a  shareholder  is  entitled  to  mandamus  to  com- 
pel the  custos  of  corporate  documents  to  allow  him  an  inspection, 
and  copies  of  them,  at  reasonable  times,  for  a  specific  and  proper  pur- 
pose, upon  showing  a  refusal  on  the  part  of  the  custos  to  allow  it ;  and 
not  otherwise.  What  would  be  a  fit  occasion  is  well  indicated  by  the 
remarks  of  the  court  in  Burton  and  the  Saddlers'  Co. ;  and  they  apply 
in  case  of  other  grievances  of  a  shareholder  as  well  as  to  the  particular 
one  of  which  he  was  speaking. 

Among  the  cases  cited  at  argument  are  two  where  it  was  said  that 
mandamus  is  confined  to  cases  of  a  public  nature,  and  will  not  be 
awarded  to  a  trading  corporation.  In  the  King  v.  Bank  of  England, 
2  B.  &  Aid.,  620,  the  application  was  b}'  a  stockholder  for  the  writ  to 
compel  the  governor  and  company  of  the  bank  to  produce  their  ac- 
counts and  declare  a  dividend.  The  King  v.  London  Assurance  Co., 
5  B.  &  Aid.,  899,  was  a  petition  for  a  mandamus  to  compel  a  transfer 
of  shares  standing  in  the  name  of  a  bankrupt  stockholder  to  his 
assignees.  There  was  no  ground  for  the  writ  in  either  case.  The 
examination  of  accounts  and  division  of  profits  may  effectually  be  gone 
into  in  a  court  of  equity.  For  a  refusal  to  transfer  shares  of  stock  the 
injured  party  has  an  adequate  remedy  in  an  action  for  damages.  But 
these  decisions  are  based  on  the  old  rule  which  has  been  superseded, 
so  far  as  the  opinions  go. 

Statutory  regulations  in  some  states  respecting  the  right  of  share- 
holders to  inspect  the  books  and  muniments  of  corporations,  and  cases 
within  such  statutes,  cast  little  if  any  light  on  the  question  now  pend- 


252  COMMONWEALTH   V.   PHOZXIX   IROX   CO. 

ing.  It  cannot  be  inferred  from  those  enactments  in  other  states  that 
in  this  there  is  no  such  right  of  inspection  at  common  law,  or  that  in  a 
fitting  case  a  shareholder  shall  not  have  the  appropriate  remedy  to 
secure  its  enjoyment  specificalty. 

Has  the  relator  shown  such  facts  as  entitle  him  to  an  alternative 
mandamus?  The  capital  stock  of  the  corporation  is  $500,000,  divided 
into  shares  of  $100  each,  a  majority  of  which  is  owned  by  David 
Reeves,  president,  and  William  H.  Reeves,  one  of  the  directors.  Its 
works  are  extensive  and  its  business  apparently  prosperous,  for  the  last 
ten  years  averaging  over  $2,000,000  per  annum  ;  3"et  no  dividend  has 
been  declared  for  the  last  nine  years.  In  1866  the  relator  purchased 
238  shares  of  the  stock  for  $38,500,  and  still  owns  234  shares.  The 
principal  part  of  the  business  of  the  corporation  has  been  absorbed  by 
a  partnership  in  name  of  Clark,  Reeves  &  Co. ;  the  said  Daniel 
Reeves  and  the  said  William  H.  Reeves  and  John  Griffin,  a  direc- 
tor of  said  corporation,  are  partners  and  a  majorit}-  of  the  partners 
in  said  firm  of  Clark,  Reeves  &  Co.  ;  and  the  relator  avers  that  there 
is  a  contract  of  copartnership  between  the  corporation  and  said  firm, 
and  that  said  president  and  two  directors  take  advantage  of  their 
positions  to  advance  their  private  interests  as  members  of  the  firm  to 
the  disadvantage  of  the  corporation.  Every  director  holds  a  salaried 
position  under  the  corporation.  In  1875,  the  corporation  transferred 
real  estate  of  great  value  to  secure  alleged  indebtedness  to  the  estate  of 
David  Reeves,  deceased,  the  trustees  being  interested  in  said  estate. 

Although  a  large  stockholder  for  a  long  time,  the  relator  has  enjoj'ed 
neither  income  from  his  stock  nor  the  privilege  of  knowing  how  the 
receipts  from  the  business  of  the  corporation  are  expended.  His 
knowledge  of  the  conduct  of  the  business  is  that  which  is  common  to 
strangers,  to  the  public.  At  a  meeting  of  the  stockholders  he  asked 
for  information,  and  they  refused  to  permit  Jjie  minutes  to  be  read,  or 
papers  to  be  examined.  His__request  to  the  president  of  the  company 
that  a  time  and  place  would  be  named  when  and  where  it  would  be 
convenient  for  him  to  examine  such  books  of  the  company  as  would 
give  him  information  of  the  items  of  inventories,  bills  receivable, 
salaries  of  officers  and  minutes  of  meetings,  was_refused.  His  demand 
at  the  office  of  the  corporation,  during  business  hours,  of  the  officers 
and  directors,  for  access  to  the  books  and  papers  which  would  give 
him  information  upon  subjects  which  he  named.  was_refiised.  In  those 
things  that  he  named  he  is  as  directl}'  interested  as  any  other  stock- 
holder ;  but  the}'  are  concealed  from  him  by  the  directors  and  officers 
of  the  corporation  who  own  a  majority  of  the  stock.  The  surface  indi- 
cations are  that  the  business  of  the  corporation  has  been  profitable  as 
well  as  large,  and  that  the  profits  have  been  wrongfully  appropriated 
by  those  who  control  the  business,  to  the  injury  of  the  relator.  Were 
an  inner  view  permitted,  he  might  see  that  there  had  been  no  profits, 
no  misappropriation  of  moneys,  and  that  all  that  has  been  done  was 
well  done  for  the  interest  of  every  shareholder 


SMITH   V.   HUKD.  253 

The  relator  avers  that  he  purposes  filing  a  bill  in  equity  against  the 
corporation  and  its  officers,  and  that  it  is  necessary  that  he  see  the 
books  and  papers  in  order  that  he  may  correctly  state  the  facts  now 
concealed  from  him.  Upon  learning  the  facts  he  may  abandon  .his 
purpose  for  want  of  matter  of  complaint.  He  desires  "  to  inspect  and 
see  whether  he  can  raise  a  particular  case  in  his  favor  by  examining 
the  books ; "  upon  the  verity  of  the  facts  set  forth  in  his  petition,  we 
are  of  opinion  that  he  is  entitled  to  an  alternative  mandamus.  The 
writ  should  not  extend  to  anj-  books  and  papers  other  than  such  as 
contain  information  upon  the  subjects  specified  in  the  prayer  of  the 
petition. 

The  order  discharging  the  rule  to  show  cause  is  reversed,  and 
judgment  for  the  Commonwealth  that  an  alternative  mandamus 
be  issued.  Record  remitted  for  further  proceedings. 


SMITH  v.  KURD  ET  ALS. 

1847.     12  Metcalf  (Mass.),  371.1 

THIS  was  a  special  action  on  the  case,  by  a  stockholder  of  the 
EJjoenix  Bank  against  the  directors.  There  were  two  counts ;  one 
founded  in  non-feasance  of  official  duty,  the  other  in  misfeasance. 

The  first  count  alleged  (inter  alia)  that  it  was  the  dut}T  of  the  direc- 
tors to  direct  and  superintend  the  proceedings  of  the  officers,  and  to 
exercise  reasonable  vigilance  in  seeing  that  the  property  of  the  bank 
was  not  lost,  wasted,  or  misused  ;  but  that  the  directors  disregarding 
their  dutj-,  and  contriving  together  to  injure  and  deceive  the  plaintiff 
therein,  neglected  to  give  reasonable  personal  attention  to  the  business 
of  the  bank;  and  negligently  permitted  the  whole  business  to  be 
managed  by  the  president,  Wyman,  who  loaned  its  monies  on  in- 
sufficient securities,  used  certain  sums  himself,  and  made  loans  to 
individual  directors  exceeding  the  limits  of  the  law :  whereb}"  the  bank 
capital  became  wholly  lost,  and  plaintiff  was  made  liable,  under  the 
law,  for  his  proportion  of  the  capital  lost  b}1  the  official  mismanage- 
ment of  the  directors,  and  further  Ifable  to  pay  large  sums  for  the 
redemption  of  the  bills  of  the  bank. 

The  second  count  alleged  (inter  alia)  that  the  directors,  disregard- 
ing their  duties,  and  contriving  together  to  injure  and  deceive  the  plain- 
tiff therein,  concurred  with  each  other  that  the  whole  business  should 
be  managed  by  the  president,  Wyman,  as  he  should  see  fit ;  and  that 
defendants  themselves  declared  dividends  when  there  were  no*  profits, 
and  caused  false  returns  to  be  made  to  the  State  authorities,  by  which 
means  plaintiff  was  misled  and  induced  to  rely  on  the  security  of  his 

1  Statement  abridged.    Arguments  omitted. —  ED. 


254  SMITH   V.   HURD. 

investment.  And,  generally,  the  second  count  charged  as  acts  of  the 
defendants  (done  through  Wyman)  the  matters  which,  in  the  first 
count,  were  charged  as  negligences  and  permissions,  and  deduced 
therefrom  in  like  manner  the  failure  of  the  bank,  and  the  special  dam- 
age to  the  plaintiff.  The  count  concluded  with  an  averment  that 
defendants,  by  "  misconducting  the  business  of  said  bank,  as  aforesaid, 
so  wilfully,  deceitfully  and  fraudulent!}7  mismanaged  the  business  and 
property  of  the  said  bank,  that  the  whole  capital  thereof  was  utterly 
lost  and  wasted." 

Defendants  demurred  to  the  declaration. 

B.  R.  Curtis  and  B.  Hand,  for  defendants. 

Gardiner  (  Greenleaf  with  him),  for  plaintiff. 

SHAW,  C.  J.  This  is  certainly  a  case  of  first  impression.  We  are 
not  aware  that  any  similar  action  has  been  sustained  in  England,  or  in 
any  of  the  courts  of  this  country.  It  is  founded  on  no  statute.  It  is 
an  action  on  the  case,  at  common  law,  brought  by  an  individual  holder 
of  shares  in  an  incorporated  banK,  against  tne  directors,  noTlncluding 
the  president,  setting  forth  various  acts  of  negligence  and  malfeasance, 
through  a  series  of  years,  in  consequence  of  which,  as  the  declaration 
alleges,  the  whole  capital  of  the  bank  was  wasted  and  lost,  and  the 
shares  of  the  plaintiff  became  of  no  value.  The  circumstance  that  no 
such  action  has  been  maintained,  would  certainly  be  no  decisive  objec- 
tion, if  it  could  be  shown  to  be  maintainable  on  principle.  But  the 
fact,  that  similar  grievances  have  existed  to  a  great  extent,  and  in 
numberless  instauces,  where  such  an  action  would  have  presented  an 
obvious  and  effective  remedy,  affords  strong  proof,  that  in  the  view  of 
all  such  suffering  parties,  and  their  legal  advisers  and  guides,  there 
was  no  principle  on  which  such  an  action  can  be  maintained. 

If  an  action  can  be  brought  by  one  stockholder,  it  ma}-  be  brought 
by  the  holder  of  a  single  share  ;  so  that  for  one  and  the  same  default  of 
these  directors,  thirty-five  hundred  actions  might  be  brought.  If  it 
may  be  sustained  by  proof  of  an  act,  or  series  of  acts,  of  carelessness, 
neglect,  and  breach  of  duty,  in  managing  the  affairs  of  the  bank,  by 
which  the  whole  value  of  the  stock  is  destroyed,  it  ma\r,  on  the  same 
principle,  be  maintained  on  any  act  or  instance  of  such  negligence,  by 
which  the  shares  are  diminished  in  value  fifty,  ten,  five,  or  one  per 
cent.  Still,  notwithstanding  these  consequences,  if  the  plaintiff  has  a 
good  right  of  action,  upon  recognized  and  sound  legal  principles,  his 
action  ought  to  be  sustained. 

But  the  court  are  of  opinion  that  the  action  cannot  be  maintained ; 
and  that  on  several  grounds,  a  few  of  the  more  prominent  of  which 
may  be  alluded  to. 

1.  There  is  no  legal  privity,  relation,  or  immediate  connexion,  be- 
t wee n  the,  holders  of  shares  in  a  bank,  in  their  individual  capacity,j)n 
the  one  side,  and  the  directors  of  the  bank  on  the  other  The  directors 
are  not  the~bailees,  the  factors,  agents  or  trustees  of  such  individual 
stockholders.  The  bank  is  a  corporation  and  body  politic,  having 


SMITH   V.   KURD.  255 

a  separate  existence  as  a  distinct  person  in  law,  in  whom  the  whole 
stock  and  property  of  the  bank  are  vested,  and  to  whom  all  agents, 
debtors,  officers  and  servants  are  responsible  for  all  contracts,  express 
or  implied,  made  in  reference  to  such  capital,  and  for  all  torts  and 
injuries  diminishing  or  impairing  it.  The  very  purpose  of  incorpora- 
tion is,  to  create  such  legal  and  ideal  person  in  law,  distinct  from  all 
the  persons  composing  it,  in  order  to  avoid  the  extreme  difficulty,  and 
perhaps  it  is  not  too  much  to  say  the  utter  impracticability,  of  such  a 
number  of  persons  acting  together  in  their  individual  capacities.  The 
practical  difficult}'  would  be  nearly  as  great,  whether  it  were  held  that 
all  must  join  in  an  action  to  recover  damage  for  an  injury  to  the  com- 
mon property,  or  that  each  might  sue  separate!}-. 

The  stockholders  do,  indeed,  ordinarily  elect  the  directors  ;  but  it  is 
as  parts  and  members  of  the  corporation,  in  their  corporate  capacity, 
in  modes  pointed  out  by  the  charter  and  by-laws,  so  that  the  directors 
are  the  appointees  of  the  corporation,  not  of  the  individuals.  Indeed,  L 
I  believe  there  is  a  provision  in  the  bank  charters  —  there  certainly 
was  formerly  —  which  is  equally  to  the  present  purpose  ;  namely,  that 
the  Commonwealth  shall  be  at  liberty  to  add  a  certain  amount  to  the 
capital  of  various  banks,  and  appoint  a  proportional  number  of  direc- 
tors. Such  directors,  so  appointed,  pursuant  to  the  charter  regulating 
the  legal  organization  of  the  body,  would  stand  in  all  respects  on  the 
footing  of  directors  chosen  by  the  stockholders.  If  these  were  liable 
to  the  action  of  individual  stockholders,  those  would  be,  in  like 
manner. 

2.  The  individual  members  of  the  corporation,  whether  the}7  should 
all  join,  or  each  act  severally,  have  no  right  or  power  to  intermeddle 
with  the  property  or  concerns  of  the  bank,  or  call  any  officer,  agent  or 
servant  to  account,  or  discharge  them  from  any  liability.     Should  all  \ 
the  stockholders  join  in  a  power  of  attorney  to  any  one,  he  could  not 
take  possession  of  any  real  or  personal  estate,  any  security  or  chose  in 
action  ;  could  not  collect  a  debt,  or  discharge  a  claim,  or  release  dam- 
age arising  from  any  default ;   simply  because  they  are  not  the  legal 
owners  of  the  property,  and  damage  done  to  such  property  is  not  an 
injury  to  them.     Their  rights  and  their  powers  are  limited  and  well 
defined.     They  are  members  of  an  organized  body,  and  exercise  such 
powers  as  the  organization  of  the  institution  gives  them.    Stockholders 
in  banks  have  a  separate  right  to  dividends,  when  declared,  and  to  a 
distributive  share  of  the  capital  stock,  if  any  remains  when  the  charted 
of  the  bank  is  at  an  end,  and  its  debts  paid. 

3.  But  another  important  consideration  is,  that  the  injury  done  to 
the  capital  stock  by  wasting,  impairing,  and  diminishing  its  value,  is 
not,  in  the  first  instance,  nor  necessarily,  a  damage  to  the  stockholders. 
All  sums  which  could,   in  any  form,   be  recovered  on  that  ground^ 
would  be  assets  of  the  corporation,  and  when  collected  and  received  by 
directors,  receivers,  or  any  other  persons  entitled  to  receive  the  same, 
they  would  be  held  in  trust,  first  to  redeem  the  bills  and  pay  the  debts 


256  SMITH   V.   KURD. 

of  the  bank  ;  and  it  would  be  only  after  these  debts  were  paid,  and  in 
case  any  surplus  should  remain,  that  the  stockholders  would  be  entitled 
to  receive  any  thing.  It  is,  therefore,  an  indirect,  contingent  and  sub- 
ordinate interest,  which  each  stockholder  has,  in  damages  so  to  be 
recovered  against  directors.  If,  upon  such  indirect,  contingent,  and 
remote  interest,  individual  stockholders  could  recover  for  the  defaults 
of  directors,  and  especially,  as  is  alleged  in  this  case,  where  these 
defaults  have  been  so  great  as  to  sink  the  capital,  a  fortiori  would  the 
creditors  of  the  bank  individually  have  a  right  to  maintain  similar 
actions ;  because  their  claim  upon  the  funds,  being  prior  to  that  of 
stockholders,  would  be  somewhat  more  immediate  and  direct. 

In  the  same  connexion,  it  is  obvious  to  remark,  that  a  judgment  in 
favor  of  one  stockholder  would  be  no  bar  to  an  action  by  a  creditor, 
nor  a  judgment  by  both,  to  an  action  by  the  corporation. 

4.  But  it  is  said,  that  although  the  real  and  personal  estate,  the 
securities  and  capital  stock,  are,  in  legal  contemplation,  vested  in  the 
corporation,  yet  the  individual  has  a  separate  and  distinct  property 
and  interest  in  his  particular  shares,  by  any  injury  to  which  he  may 
have  a  separate  damage.  To  some  extent,  it  is  true  that  he  has  a  sev- 
eral interest  in  his  shares ;  but  it  is  to  be  taken  with  some  qualifica- 
tions. Strictly  speaking,  shares  in  a  bank  do  not  constitute  a  legal 
estateandjjroperty ;  it  is  rather  a  limited  and  qualified  right  which  the 
stockholder  has  to  participate,  in  a  certain  proportion,  in  the  benefits 
of  a  common  fund,  vested  in  a  corporation  for  the  common  use  ;  it  is  a 
qualified  and  equitable  interest,  a  valuable  interest,  manifested  usually" 
by  a  certificate,  which  is  transferable^ To  the  extent  6T  this  separate 
and  peculiar  interest,  a  stockholder,  no  doubt,  might  maintain  his 
separate  and  special  action,  according  to  the  nature  of  the  wrong  done 
to  him  in  respect  to  it ;  as  trover  or  trespass,  for  the  conversion  or 
tortious  taking  of  his  certificate ;  trespass  on  the  case  for  refusing  to 
make  a  transfer  on  a  proper  occasion ;  assumpsit  for  a  dividend  de- 
clared, and  the  like.  But  an  injury  done  to  tlie_,stock  and,  capital,  by_ 
.  negligence^  or  noisjeasaiice^  is  not  an  injury  to  such_separate  interest, 
but  to  the_whole  body  of  stockholders  in  common.  It  is  like  the  case 
of  a  common  nuisance,  where  one  who  suffers  a  special  damage,  pecu- 
liar to  himself,  and  distinguishable  in  kind  from  that  which  he  shares 
in  the  common  injury,  may  maintain  a  special  action.  Otherwise,  he 
cannot.  Co.  Lit.  56  a.  3  Steph.  N.  P.  2372.  Lansing  \.  Smith,  8 
Cow.  146. 

But  we  are  pressed  with  the  argument,  that  for  every  damage  which 
one  sustains,  which  is  caused  by  the  wrongful  act  of  another,  he  ought 
to  have  a  remedy.  This  is  far  from  being  universally  true.  Another 
maxim  in  regard  to  claims  for  damage  is,  causa  proximo,,  non  remota, 
spectatur.  Thousands  of  instances  occur,  in  which  one  sustains  conse- 
quential and  incidental  damage  from  the  misconcTuct  of  another,  with- 
out a  remedy  at  laak_  By  the  misconduct  of  the  officers  or  agents  of  a 
parish,  town,  county,  or  even  of  the  State  or  the  Union,  defalcations 


DODGE   V.   WOOLSEY.  257 

may  take  place,  treasure  be  squandered  and  wasted,  and  all  the  mem- 
bers of  the  respective  aggregate  bodies  suffer  damage,  for  which  the 
law,  from  the  nature  of  the  case,  can  afford  no  direct  remedy.  But  the 
true  answer  to  the  objection  is,  that  stockholders  have  a  remedy,  a 
theoretic  one  indeed,  and  perhaps  often  inadequate,  in  the  power  of 
the  corporation,  in  its  corporate  capacity,  to  obtain  redress  for  injuries 
done  to  the  common  property,  by  the  recovery  of  damages  ;  and  each 
individual  stockholder  has  his  remedy,  through  the  powers  thus  vested 
in  the  corporation,  for  the  common  benefit., 

On  the  whole,  the  court  are  of  opinion  that  the  demurrer  is  well 
taken,  and  that  the  action  cannot  be  maintained. 


DODGE  v.    WOOLSEY. 

1855.     18  Howard  (U.  S.),  33 1.1 

APPEAL  from  the  U.  S.  Circuit  Court  for  the  District  of  Ohio. 

This  is  a  suit  in  equity  by  John  M.  Woolse}',  to  enjoin  the  collection 
of  a  tax,  assessed  by  the  State  of  Ohio,  on  the  Commercial  Branch 
Bank  of  Cleveland,  a  branch  of  the  State  Bank  of  Ohio.  The  de- 
fendants are  Dodge,  the  tax  collector,  the  directors  of  the  bank,  and 
the  bank  itself. 

Woolscy  avers  that  he  is  a  citizen  of  Connecticut,  that  he  is  the 
owner  of  thirty  shares  in  the  Branch  Bank  of  Cleveland,  that  Dodge 
and  the  other  defendants  are  all  citizens  of  Ohio,  and  that  the  Com- 
mercial Branch  Bank  is  a  corporation,  made  such  by  an  act  of  the 
legislature  of  Ohio.  He  alleges  that,  b}-  the  act  of  incorporation,  the 
Bank  was  to  pa}*  semiannual!}*  to  the  State  a  certain  percentage  on  its 
profits,  which  was  to  be  in  lieu  of  all  taxes  to  which  the  corporation,  or 
the  stockholders  on  account  of  their  stock,  would  otherwise  be  subject. 
He  further  alleges  that  subsequent  changes  were  made  by  the  constitu- 
tion and  statutes  of  Ohio,  undertaking  to  tax  the  Bank  at  a  different 
and  more  burdensome  rate.  He  asks  the  Court  to  enjoin  Dodge  from 
collecting  by  distress  a  tax  which  has  been  assessed  against  the  Bank 
under  this  law  ;  contending  that  the  subsequent  statute  and  assessment 
are  in  violation  of  the  clause  in  the  U.  S.  Constitution,  which  prohibits 
States  from  passing  laws  impairing  the  obligation  of  contracts.  He 
finally  declares  that,  as  a  stockholder  of  the  Bank,  he  had  requested 
the  directors  to  take  measures,  by  suit  or  otherwise,  to  assert  the 
franchises  of  the  Bank  against  the  collection  of  what  he  believes  to  be 
an  unconstitutional  tax,  and  that  they  had  refused  to  do  so. 

1  Statement  abridged.  Only  so  much  of  the  case  is  given  as  relates  to  one  point. 
—  E». 

17 


258  DODGE   V.   WOOLSEY. 

Dodge  filed  an  answer,  in  which  he  denied  that  "Wools ey  had  made 
any  application  to  the  directors  to  prevent  the  collection  of  the  tax. 
But  it  was  agreed  by  the  counsel  that  such  an  application  had  been 
made ;  and  that  the  directors  replied  that,  though  concurring  in  the 
view  that  the  tax  was  illegal,  yet,  in  consideration  of  the  many  obstacles, 
in  the  way  of  testing  the  law  in  the  Courts  of  the  State,  they  could  not 
consentjojake  the  action  which  they  were  asked  to  take. 

Spalding  and  Pugli,  for  appellant. 

Stanberry  and  Vlnton,  for  appellee. 

WAYNE,  J.     [After  stating  the  case]. 

Upon  the  foregoing  pleadings  and  admission,  the  circuit  court  ren* 
dered  a  final  decree  for  the  complainant,  perpetually  enjoining  the 
treasurer  against  the  collection  of  the  tax,  under  the  act  of  the  13th 
Februan',  1852,  and  subjecting  the  defendant,  Dodge,  to  the  paj-ment 
of  the  costs  of  the  suit.  From  that  decision  the  defendant,  Dodge,  has 
appealed  to  this  court. 

His  counsel  have  relied  upon  the  following  points  to  sustain  the 
appeal : 

1.  The  complainant  does  not  show  himself  to  be  entitled  to  relief  in 
a  court  of  chancer}',  because  the  charter  of  the  bank  provides  that  its 
affairs  shall  be  managed  by  a  board  of  directors,  and  that  they  are  not 
amenable  to  the  stockholders  for  an  error  of  judgment  merely.     And 
that  in  order  to  make  them  so,  it  should  have  been  averred  that  they 
were  in  collusion  with  the  tax  collector  in  their  refusal  to  take  legal 
steps  to  test  the  validity  of  the  tax. 

2.  It  was  urged  that  this  suit  had  been  improperly  brought  in  the 
circuit  court  of  the  United  States  for  the  district  of  Ohio,  because  it  is 
a  contrivance  to  create  a  jurisdiction,  where  none  fairly  exists,  b}-  sub- 
stituting an  individual  stockholder  in  place  of  the  Commercial  Bank 
as  complainant,  and  making  the  directors  defendants ;  the  stockholder 
being  made  complainant,  because  he  is  a  citizen  of  the  State  of  Con- 
necticut, and  the  directors  being  made  defendants  to  give  countenance 
to  his  suit. 

3.  It  was  said,  if  the  foregoing  points  were  not  available  to  defeat 
the  action,  that  it  might  be  contended  that  the  defendant  was  in  the 
discharge  of  his  official  duty  when  interrupted  by  the  mandate  of  the 
circuit  court,  and  that  the  tax  had  been  properly  assessed  by  the  law  of 
the  State,  in  conformity  with  its  constitution,  of  the  1st  September, 
1851. 

We  will  consider  the  points  in  their  order.  The  first  comprehends 
two  propositions,  namely :  that  courts  of  equity  have  no  jurisdiction 
over  corporations,  as  such,  at  the  suit  of  a  stockholder  for  violations  of 
charters,  and  none  for  the  errors  of  judgment  of  those  who  manage 
their  business  ordinarily. 

There  has  been  a  conflict  of  judicial  authority  in  both.  Still,  it  has 
been  found  necessanr,  for  prevention  of  injuries  for  which  common-law 
courts  were  inadequate,  to  entertain  in  equity  such  a  jurisdiction  in  the 


DODGE   V.   WOOLSEY.  259 

progressive  development  of  the  powers  and  effects  of  private  corpora- 
tions upon  all  the  business  and  interests  of  society. 

It  is  now  no  longer  doubted,  either  in  England  or  the  United  States, 
that  courts  of  equity,  in  both,  have  a  jurisdiction  over  corporations,  at 
the  instance  of  one  or  more  of  their  members ;  to  apply  preventive 
remedies  by  injunction,  to  restrain  those  who  administer^  them  from 
doing  acts  which  would  amount  to  a  violation  of  charter^  or  to  prevent  / 
any  misapplication  of  their  capitals  or  profits^  which  might_j;esult  in_ 
lessening  the  dividends  of  stockholders,  or  the  value  of  their  shares,  as 
eitbermay  be  protected  by  theJVflnchisps  of  a.  norporation,  if  the  acts 
intended  to  be  done  create  what  is  in  the  law_denoiminated_.a,bre.ach_gf 
trustr  And  the  jurisdiction  extends  to  inquire  into,  and  to  enjoin,  as 
tlie~case  may  require  that  to  be  done,  any  proceedings  by  individuals, 
in  whatever  character  they  may  profess  to  act,  if  the  subject  of  com- 
plaint is  an  imputed  violation  of  a  corporate  franchise,  or  the  denial  of 
a  right  growing  out  of  it,  for  which  there  is  not  an  adequate  remedy  at  / 
law.  2  Russ.  &  Mylne  Ch.  R.,  Cunliffe  v.  Manchester  and  Bolton 
Canal  Company,  480,  n.;  Ware  v.  Grand  Junction  Water  Company,  2 
Russ.  &  Mylne,  470;  Bagshaw  y.  Eastern  Counties  Railway  Company, 
7  Hare  Ch.  R.  114 ;  Angell  &  Ames,  4th  ed.  424,  and  the  other  cases 
there  cited. 

It  was  ruled  in  the  case  of  Cunliffe  v.  The  Manchester  and  Bolton 
Canal  Company,  2  Russ.  &  Mylne  Ch.  R.  481,  that  where  the  legal 
remedy  against  a  corporation  is  inadequate,  a  court  of  equity  will 
interfere,  and  that  there  were  cases  in  which  a  bill  in  equity  will  lie 
against  a  corporation  by  one  of  its  members.  "It  is  a  breach  of 
trust  towards  a  shareholder  in  a  joint  stock  incorporated  company, 
established  for  certain  definite  purposes  prescribed  by  its  charter, 
if  the  funds  or  credit  of  the  company  are,  without  his  consent,  diverted 
from  such  purpose,  though  the  misapplication  be  sanctioned  by  the 
votes  of  a  majority ;  and,  therefore,  he  ma}'  file  a  bill  in  equity  against 
the  company  in  his  own  behalf  to  restrain  the  company  by  injunction 
from  any  such  diversion  or  misapplication."  In  the  case  of  Ware  v. 
Grand  Junction  Water  Company,  2  Russell  &  Mylne,  a  bill  filed  by  a 
member  of  the  company  against  it,  Lord  Brougham  said  :  "  It  is  said 
this  is  an  attempt  on  the  part  of  the  company  to  do  acts  which  they  are 
not  empowered  to  do  by  the  acts  of  parliament,"  meaning  the  charter  of 
the  company ;  "so  far  I  restrain  them  03'  injunction."  "Indeed,  an 
investment  in  the  stock  of  a  corporation  must,  by  every  one,  be  con- 
sidered a  wild  speculation,  if  it  exposed  the  owners  of  the  stock  to  all 
sorts  of  risk  in  support  of  plausible  projects  not  set  forth  and  au- 
thorized by  the  act  of  incorporation,  and  which  ma}'  possibly  lead 
to  extraordinary  losses."  The  same  jurisdiction  was  invoked  and 
applied  in  the  case  of  Bagshaw  v.  The  Eastern  Counties  Railway  Com- 
pany ;  so,  also,  in  Coleman  v.  The  same  compan}-,  10  Beavan's  Ch. 
Reports,  1.  It  appeared  in  that  case  that  the  directors  of  the  com- 
pany, for  the  purpose  of  increasing  their  traffic,  proposed  to  guarantee 


260  DODGE   V.   WOOLSEY. 

certain  profits,  and  to  secure  the  capital  of  an  intended  steam  packet 
company,  which  was  to  act  in  connection  with  the  railway.  It  was 
held,  such  a  transaction  was  not  within  the  scope  of  their  powers,  and 
they  were  restrained  by  injunction.  And  in  the  second  place,  that  in 
such  a  case  one  of  the  shareholders  in  the  railway  company  was  entitled 
to  sue  in  behalf  of  himself  and  all  the  other  shareholders,  except  the 
directors,  who  were  defendants,  although  some  of  the  shareholders  had 
taken  shares  in  the  steam  packet  company.  It  was  contended  in  this 
case  that  the  corporation  might  pledge,  without  limit,  the  funds  of  the 
company  for  the  encouragement  of  other  transactions,  however- various 
and  extensive,  provided  the  object  of  that  liability  was  to  increase  the 
— traffic  upon  the  railway,  and  thereby  increase  the  traffic  to  the  share- 
holders. But  the  master  of  the  rolls,  Lord  Langdale,  said,  "  there  was 
no  authority  for  anything  of  that  kind." 

Butjurther,  it  is  not  only  illegal  for  a  corporationjto_appXv,its  capital 
to  objects  not  jx)ntemplated  by  its  charter,  but  also  tojipjjly  its  profits. 
And  therefore  a  shareholder  may  maintain  a  bill  in  equity  against  the 
directors  and  compel  the  company  to  refund  any  of  the  profits  thus 
improper!}'  applied.  It  is  an  improper  application  for  a  railway  corn- 
pan}-  to  invest  the  profits  of  the  company  in  the  purchase  of  shares  in 
another  company.  The  dividend  (says  Lord  Langdale,  in  Solamons  v. 
Laing,  14  Jurist  for  December,  1850,)  which  belongs  to  the  share- 
holders, and  is  divisible  among  them,  ma}-  be  applied  severally  as  their 
own  property  ;  but  the  company  itself  or  the  directors,  or  any  number 
of  shareholders,  at  a  meeting  or  otherwise,  have  no  right  to  dispose  of 
his  shares  of  the  general  dividends,  which  belong  to  the  particular 
shareholder,  in  any  manner  contrary  to  the  will,  or  without  the  consent 
or  authority  of,  that  particular  shareholder. 

We  do  not  mean  to  say  that  the  jurisdiction  in  equity  over  corpora- 
tions at  the  suit  of  a  shareholder  has  not  been  contested.  The  cases 
cited  in  this  argument  show  it  to  have  been  otherwise;  but  when  the 
case  of  Hodges  v.  The  New  England  Screw  Company  et  al.  was  cited 
against  it —  (we  may  say  the  best  argued  and  judicially  considered  case 
which  we  know  upon  the  point,  both  upon  the  original  hearing  and 
rehearing  of  that  cause)  —  the  counsel  could  not  have  been  aware  of 
the  fact  that,  upon  the  rehearing  of  it,  the  learned  court,  which  had 
decided  that  courts  of  equity  have  no  jurisdiction  over  corporations  as 
such  at  the  suit  of  a  stockholder  for  violations  of  charter,  reviewed  and 
recalled  that  conclusion.  The  language  of  the  court  is:  "We  have 
thought  it  our  duty  to  review  in  this  general  form  this  new  and  un- 
settled jurisdiction,  and  to  say,  in  view  of  the  novelty  and  importance 
of  the  subject,  and  the  additional  light  which  has  been  thrown  upon  it 
since  the  trial,  we  consider  the  jurisdiction  of  this  court  over  corpora- 
tions for  breaches  of  charter,  at  the  suit  of  shareholders,  and  how  far 
it  shall  be  extended,  and  subject  to  what  limits,  is  still  an  open  ques- 
tion in  this  court.  1  Rhode  Island  Reports,  312  —  rehearing  of  the 
case,  September  term,  1853." 


DODGE   V.   WOOLSEY.  261 

The  result  of  the  cases  is  well  stated  in  Angell  &  Ames,  paragraphs 
391,  393.  "  In  cases  where  the  legal  remedy  against  a  corporation  is 
inadequate,  a  court  of  equity  will  interfere,  is  well  settled,  and  there 
are  cases  in  which  a  bill  in  equity  will  lie  against  a  corporation  by  one 
of  its  members."  "  Though  the  result  of  the  authorities  clearly  is.  that 
in  a  corporation,  when  acting  within  the  scope  of  and  in  obedience  to 
the  provisions  of  its  constitution,  the  will  of  the  majorit\-,  duly  ex- 
pressed at  a  legally  constituted  meeting,  must  govern  ;  yet  beyoncLthc 
limits  of  the, act  of  incoxtKir^tioti,  jhejvill ...o_f__tbe .majority  cannot  make 
an  act  valid  ;  and  the  powers  of  a  court  of  equity  may  be  put  in  motion 
at  the  instance  of  a  single  shareholder,  if  he  can  show  that  tbejx>r- 
j3Oj^tioji^a,rj_emploving_their  statutory  powers  for__the  aceQJpplisbmejit 
of  purposes  not  within  the  scope  of  their  institution.  Yet  it  is  to  be 
observed,  that  there  is  an  important  distinction  between  this  class  of 
cases  and  those  in  which  there  is  no  breach  of  trust,  but  only  error  and 
misapprehension,  or  simple  negligence  on  the  part  of  the  directors."  l 

We  have  then  the  rule  and  its  limitation.  It  is  contended  that  this 
case  is  within  the  limitation ;  or  that  the  directors  of  the  Commercial 
Bank  of  Cleveland,  in  their  action  in  respect  to  the  tax  assessed  upon 
it,  under  the  act  of  April  18,  1852,  and  in  their  refusal  to  take  proper 
measures  for  testing  its  validity,  have  committed  an  ''error  of  judg- 
ment merely." 

It  is  obvious,  from  the  rule,  that  the  circumstances  of  each  case  must 
determine  the  jurisdiction  of  a  court  of  equity  to  give  the  relief  sought. 
That  the  pleadings  must  be  relied  upon  to  collect  what  they  are,  to 
ascertain  in  what  character,  and  to  what  end  a  shareholder  invokes  the 
interposition  of  a  court  of  equit\-,  on  account  of  the  mismanagement 

1  So  it  has  been  repeatedly  decided,  that  a  private  corporation  may  be  sued  at  law 
by  one  of  its  own  members.  The  text  upon  this  subject  is  so  well  expressed,  with  au- 
thorities to  support  it,  that  we  will  extract  the  paragraph  390  from  Angell  &  Ames 
entire.  A  private  corporation  may  be  sued  by  one  of  its  own  members.  This  point 
came  directly  before  the  court,  in  the  State  of  South  Carolina,  in  an  action  of  assumpsit 
against  the  Catawba  Company.  The  plea  in  abatement. was,  that  the  plaintiff  himself 
was  a  member  of  that  company,  and  therefore  could  maintain  no  action  against  it  in 
his  individual  capacity.  The  court,  after  hearing  argument,  overruled  the  plea  as  con- 
taining principles  subversive  of  justice ;  and  they  moreover  said,  that  the  point  had 
been  settled  by  two  former  cases,  wherein  certain  officers  were  allowed  to  maintain 
actions  for  their  salaries  due  by  the  company.  In  this  respect,  the  cases  of  incorporated 
companies  are  entirely  dissimilar  from  those  of  ordinary  copartnerships,  or  nnincor- 
'porated  joint-stock  companies.  In  the  former,  the  individual  members  of  the  company 
are  entirely  distinct  from  the  artificial  body  endowed  with  corporate  powers.  A  member 
of  a  corporation  who  is  a  creditor  has  the  same  right  as  any  other  creditor  to  secure 
the  payment  of  his  demands,  by  attachment  or  by  levy  upon  the  property  of  the  cor- 
poration, although  he  may  be  personally  liable  by  statute  to  satisfy  other  judgments 
against  the  corporation.  An  action  was  maintained  against  a  corporation  on  a  bond 
securing  a  certain  sum  to  the  plaintiff,  a  member  of  the  corporation,  the  member  being 
deemed  by  the  court  a  stranger.  Pierce  &  Partridge,  3  Met.  Mass.  44 :  so  of  notes 
and  bonds,  accounts  and  rights  to  dividends.  Hill  ".  Manchester  and  Salford  Water- 
Works,  5  Adol.  &  Ellis,  866;  Dunston  r.  Imperial  Glass  Company,  3  B.  &  Adol.  125; 
Geer  v.  School  District,  6  Vermont,  187;  Methodist  Episcopal  Society,  18  Ib.  405 ; 
Rogers  ».  Danby  Universalist  Society,  19  Ib.  187. 


262  DODGE   V.   WOOLSEY. 

of  a  board  of  directors.  Whether  such  acts  are  out  of  or  beyond 
the  limits  of  the  act  of  incorporation,  either  of  commission  contrary 
thereto,  or  of  negligence  in  not  doing  what  it  may  be  their  chartered 
duty  to  do. 

This  brings  us  to  the  inquiry,  as  to  what  the  directors  have  done  in 
this  case,  and  what  they  refused  to  do  upon  the  application  of  their 
co-corporator,  John  M.  Woolsey.  After  a  full  statement  of  his  case, 
comprehending  all  of  his  rights  and  theirs  also,  alleging  in  his  bill  that 
his  object  was  to  test  the  validity  of  a  tax  upon  the  ground  that  it  was 
unconstitutional,  because  it  impaired  the  obligation  of  a  contract  made 
by  the  State  of  Ohio  with  the  Commercial  Bank  of  Cleveland,  and  the 
stockholders  thereof ;  he  represents  in  his  own  behalf,  as  a  stock- 
holder, that  he  had  applied  to  the  directors,  requesting  them  to  take 
measures^by  suit  or  otherwise,  to  prevent  the  collection  of  the  tax  by_ 
the  treasurer,  and  that  they  refused  to  do  so,  accompanying,  however, 
their  refusal  with  the  declaration  that  the}'  fully  concurred  with  Woolsey 
in  his  views  as  to  the  illegality  of  the  tax  ;  that  they  believed  it  in  no 
way  binding  upon  the  bank,  but  that,  in  consideration  of  the  man}* 
obstacles  in  the  way  of  resisting  the  collection  of  the  tax  in  the  courts 
of  the  State,  the}*  could  not  consent  to  take  legal  measures  for  testing 
it.  Besides  this  refusal,  the  papers  in  the  case  disclose  the  fact  that 
the  directors  had  previously  made  two  protests  against  the  constitu- 
tionality of  the  tax,  because  it  was  repugnant  to  the  constitution  of  the 
United  States,  and  to  that  of  Ohio  also,  both  concluding  with  a  resolu- 
tion that  the}'  would  not,  as  then  advised,  pay  the  tax,  unless  compelled 
by  law  to  do  so,  and  that  they  were  determined  to  rely  upon  the  con- 
stitutional and  legal  rights  of  the  bank  under  its  charter.  Now,  in  our 
view,  the  refusal  upon  the  part  of  the  directors,  by  their  own  showing, 
paHaKes  more_of  disregard  of  duty,  than  of  an  error  of  judgment It 
was  a  non-performance  of  a  confessed  official  obligation,  amounting  to 
what  the  law  considers  a  breach  of  trust,  though  it  may  not  involve 
intentional  moral  delinquency.  It  was  a  mistake,  it  is  true,  of  what 
their  duty  required  from  them,  according  to  their  own  sense  of  it,  but, 
being  a  duty  by  their  own  confession,  their  refusal  was  an  act  outside 
of  the  obligation  which  the  charter  imposed  upon  them  to  protect  what 
they  conscientiously  believed  to  be  the  franchises  of  the  bank.  A  sense 
of  duty  and  conduct  contrary  to  it,  is  not  "an  error  of  judgment 
merely,"  and  cannot  be  so  called  in  any  case.  It  amounted  to  an  • 
illegal  application  of  the  profits  dueto  the  stockholders  of  the  bank; 
into  whieJTjj^oiirTnf  equity  will  inquire  to  prevent  its  being  made. 

Thinking,  MS  we  do,  that  the  action  of  the  board  of  directors  was  not 
"•  an  error  of  judgment  merely,"  but  a  breach  of  duty,  it  is  our  opinion 
that  they  were  properly  made  parties  to  the  bill,  and  that  the  jurisdic- 
tion of  a  court  of  equity  reaches  such  a  case  to  give  such  a  remedy  as 
its  circumstances  may  require.  This  conclusion  makes  it  unnecessary 
for  us  to  notice  further  the  point  made  by  the  counsel  that  the  suit 
should  have  been  brought  in  the  name  of  the  corporation,  in  support  of 


PEABODY   V.   FLINT. 

which  they  cited  the  case  of  the  Bank  of  the  United  States  v.  ( 
The  obvious  difference  between  this  case  and  that  is,  that  the 
the  United  States  brought  a  bill  in  the  circuit  court  of  the  Unitec 
for  the  district  of  Ohio,  to  resist  a  tax  assessed  under  an  act  of  that 
State,  and  executed  by  its  auditor,  and  here  the  directors  of  the  Com- 
mercial Bank  of  Cleveland,  by  refusing  to  do  what  they  had  declared  it 
to  be  their  duty  to  do,  have  forced  one  of  its  corporators,  in  self- 
defense,  to  sue.  If  the  directors  had  done  so  in  a  State  court  of  Ohio, 
and  put  their  case  upon  the  unconstitutionality  of  the  tax  act,  because 
it  impaired  the  obligation  of  a  contract,  and  had  the  decision  been 
against  such  claim,  the  judgment  of  the  State  court  could  have  been 
re-examined,  in  that  particular,  in  the  supreme  court  of  the  United 
States,  under  the  same  authority  or  jurisdiction  by  which  it  reversed 
the  judgment  of  the  supreme  court  of  Ohio,  in  the  case  of  the  Piqua 
Branch  of  the  State  Bank  of  Ohio  v.  Jacob  Knoop,  treasurer  of  Miami 
county,  16  How.  369. 

Decree  of  Circuit  Court  affirmed. 
CATKON,  J.,  DANIEL,  J.,  and  CAMPBELL,  J.,  dissented. 


PEABODY  ET  AL.   v.   FLINT  ET  ALS. 

1863.     6  Allen  (Mass.),  52.1 

BILL  IN  EQUITY,  brought  March  9,  1860,  by  two  stockholders  of  the 
Lowell  and  Salem  Railroad  Company,  for  themselves  and  in  behalf  of 
the  other  stockholders,  against  certain  directors  and  agents  of  said 
company,  and  of  the  Lowell  and  Lawrence  Railroad  Company,  whose 
railroad  connected  with  that  of  the  former  company,  and  others,  charg- 
ing various  acts  of  conspiracy  and  fraud,  b}'  which  the  interests  of  the 
stockholders  in  the  Salem  and  Lowell  Railroad  Company  were  preju- 
diced and  sacrificed,  for  the  benefit  of  the  Lowell  and  Lawrence  Rail- 
road  Company ;___ and  especially  in  reference  to  false  and  fraudulent 
representations  and  practices  for  the  purpose  of  injuring  the  credit  of 
the  Salem  and  Lowell  Railroad,  and  enabling  them  to  issue  and  take 
its  bonds,  on  the  20th  of  August  1856,  secured  by  a  mortgage  of  prop- 
erty of  the  company,  at  prices  below  their  true  value;  and  also  in 
reference  to  a  contract  executed  on  the  1st  of  October  1858,  by  which 
the  Lowell  and  Lawrence  Railroad  Company  were  to  "do  and  perform 
all  the  transportation  of  persons  and  freight  upon  and  over  the  Salem 
and  Lowell  Railroad,"  and  to  pretended  settlements  made  between  said 
companies.  The  bill  also  set  forth  that,  since  the  plaintiffs  had  reason 

1  Arguments  omitted.  —  ED. 


264  PEABODY  V.  FLINT. 

to  suspect  the  frauds  and  conspiracies  charged,  they  have  demanded 
explanations  of  the  defendants,  petitioned  the  general  court  for  an 
investigation,  and  endeavored  to  procure  the  election  of  directors  who 
would  cause  the  matters  to  be  investigated,  but,  being  in  a  minority, 
have  failed  to  succeed.  The  defendants  filed  a  general  demurrer.  The 
plaintiffs,  at  the  argument,  moved  to  amend  their  bill  by  joining  the 
Salem  and  Lowell  Railroad  Company  as  defendants. 

This  case  was  argued  in  Januaiy  1862. 

J.  G.  Abbott  and  T.  Wentworth,  for  defendants. 

&  H.  Phillips  and  <7.  A.  Gillis  (  W.  P.  Webster  with  them,)  for 
plaintiffs. 

CHAPMAN,  J.  The  bill  sets  forth  a  very  complicated  case.  A  full 
consideration  of  the  charges  of  fraud  which  it  contains  would  involve 
the  necessity  of  examining  the  various  legislative  acts  which  it  recites, 
and  the  contracts  and  dealings  which  it  sets  forth.  But  such  a 
discussion  is  unnecessarj". 

The  principal  ground  of  demurrer  relied  on  by  the  defendants  is, 
that  the  plaintiffs  have  not,  and  never  had,  any  remedy  for  such  injuries 
as  they  complain  of;  that,  conceding  the  truth  of  the  allegations  that 
the  directors  of  the  Salem  and  Lowell  Railroad  Company,  either  by 
themselves  or  with  the  consent  and  connivance  of  a  majorit}7  of  their 
stockholders,  combined,  either  among  themselves,  or  with  the  Lowell 
and  Lawrence  Railroad  Company  or  its  directors,  or  with  an}'  of  the 
other  defendants,  to  defraud  a  minority  of  the  stockholders  of  the  Salem 
and  Lowell  Railroad  Company,  and  in  pursuance  of  this  combination 
did  the  acts  alleged,  and  so  dealt  and  managed  as  to  destroy  the  value 
of  the  stock  as  set  forth,  yet  the  only  relief  which  the  minority  can  have 
is  the  very  imperfect  one  of  selling  out  their  stock  for  what  it  will  bring 
in  market.  This  doctrine  is  said  to  result  from  the  nature  of  corporate 
property,  which,  being  owned  absolutely  by  the  corporation,  is  under 
the  absolute  control  of  a  majority  of  the  stockholders,  and  of  such 
directors  as  they  choose  to  elect.  Their  decisions  and  acts,  it  is  said, 
are  final,  and  the  minority  are  bound  to  submit  to  them. 

But  this  doctrine,  if  correct,  would  place  the  property  of  stockholders 
in  a  corporation  in  a  perilous  condition.  For  it  would  enable  the 
managers  of  one  corporation  to  get  the  control  of  another  by  the  pur- 
chase of  a  majority  of  its  stock  for  the  purpose,  and  then  to  manage  its 
affairs  in  such  subservience  to  the  interests  of  their  own  corporation, 
as  to  render  the  stock  of  the  minority  worthless,  and  avail  themselves 
of  its  value  without  compensation.  The  demurrer  concedes,  for  the 
purposes  of  this  discussion,  that  the  managers  of  the  Lowell  and  Law- 
rence Railroad  Company  have  thus  acted  in  respect  to  the  minority  of 
stockholders  in  the  Salem  and  Lowell  Railroad  Company.  It  requires 
no  great  sagacity  to  see  how  similar  frauds  ma}-  be  practised  in  behalf 
of  many  other  railroads  against  connecting  or  rival  roads,  so  that  a 
system  of  railroad  connections  ma}-  become  a  system  of  frauds.  If  it 
may  be  practised  with  impunity  between  railroad  corporations,  it  may 


PEABODY   V.  FLINT.  2G5 

also  be  practised  between  manufacturing  corporations,  and  a  managing 
majority  may,  at  their  pleasure,  sacrifice  the  interests  of  the  minority 
for  the  benefit  of  another  corporation  owned  by  them.  The  same 
remark  is  true  in  respect  to  several  other  classes  of  business  corpora- 
tions. The  question  thus  presented  is  of  great  importance,  because 
there  is  no  known  practicable  method  of  establishing  and  managing 
railroads  except  by  means  of  corporations  ;  and  many  other*  great 
enterprises  and  branches  of  business  which  require,  for  their  successful 
prosecution,  a  large  and  permanent  investment  of  capital,  are  also 
usually  and  most  conveniently  established  and  managed  by  means  of 
corporate  organizations. 

This  doctrine  is  also  said  to  result  from  the  nature  of  corporations 
and  corporate  property,  as  stated  in  Smith  v.  Jfurd,  12  Met.  371. 
The  views  taken  in  that  case  are  unquestionably  correct ;  and  they 
apply  with  especial  force  to  that  class  of  corporations  whose  stock- 
holders have  little  more  power  than  to  elect  officers,  who,  when  elected, 
are  invested  by  law  with  the  sole  and  exclusive  power  of  managing  the 
concerns  and  business  of  the  corporation.  The  corporation  itself  is 
regarded  as  a  distinct  person  ;  and  its  property  is  legally  vested  in 
itself,  and  not  in  its  stockholders.  As  individuals,  the}'  cannot,  even  by 
joining  together  unanimous!}-,  convey  a  title  to  it,  or  maintain  an  action 
at  law  for  its  possession,  or  for  damages  done  to  it.  Nor  can  they  make 
a  contract  that  shall  bind  it,  or  enforce  by  action  a  contract  that  has 
been  made  with  it.  The  artificial  person  called  the  corporation  must 
manage  its  affairs  in  its  own  name,  as  exclusively  as  a  natural  person 
manages  his  property  and  business.  The  officers,  though  chosen  by 
vote  of  the  stockholders,  are  not  their  agents,  but  the  agents  of  the 
corporation;  and  the}'  are  accountable  to  it  alone.  Therefore  one  or 
more  of  the  stockholders  cannot  maintain  an  action  at  law  against  the 
officers  for  any  breach  of  official  duty  that  injures  the  corporate  prop- 
erty as  a  whole.  An  injury  done  by  the  directors  of  a  company  to 
an  individual  by  inducing  him  to  become  a  member  of  the  company 
by  means  of  false  representations  is  actionable,  because  it  is  an  injury 
to  him  and  not  to  the  company.  Gerhard  v.  Bates,  2  El.  &  Bl.  476. 
But  the  interest  of  stockholders  is,  as  stated  in  Smith  v.  Hard,  cited 
above,  merely  a  qualified  and  equitable  interest. 

But  if  there  is  an  equitable  interest,  there  must  result  from  it  equi- 
table relations  and  equitable  rights ;  and  these  rights  may  be  enforced 
by  equitable  remedies.  As  between  the  corporation  itself  and  its 
officers,  it  was  long  since  held  that  they  were  trustees,  and  that  a 
court  of  equity  would  hold  them  responsible  for  every  breach  of  trust. 
Charitable  Corporation  v.  Sutton,  2  Atk.  400.  The  corporation  itself 
holds  its  property  as  trustee  for  the  stockholders,  who  have  a  joint  inter- 
est in  all  its  property  and  effects,  and  each  of  whom  is  related  to  it  as 
cestni  que  trust.  The  corporation  may  call  its  officers  to  account  if  they 
wilfully  abuse  their  trust,  or  misapply  the  funds  of  the  company  ;  andjf 
it  refuses  to  sue,  or  is  still  under  the  control  of  those  who  must  be 


266  PEABODY   V.   FLINT. 

made  defendants  in  the  suit,  the  stockholders  who  are  the  real  parties 
in  interest  may  flle  a  bill  in  their  own  names,  making  the  corporation  a 
party  defendant ;  or  a  part  of  them  may  file  a  bill  in  behalf  of  them- 
selves and  all  others  standing  in  the  same  relation,  if  convenience 
requires  it.  Robinson  v.  Smith,  3  Paige,  222,  and  cases  there  cited. 
See  also  the  other  authorities  cited  for  the  plaintiffs  on  this  point ; 
and  Hersey  v.  Veazie,  24  Maine,  9,  and  /Smith  v.  Poor,  40  Maine,  415, 
cited  by  the  defendants. 

If  other  parties  have  participated  with  the  officers  in  such  proceedings, 
they  may,  according  to  the  established  principles  of  equity  pleading, 
be  joined  as  parties.  In  the  discovery  of  frauds,  and  in  furnisuTng 
remedies  to  palties~defrauded,  equity  does  not  suffer  technicalities  to 
stand  in  its  way,  but  seizes  upon  the  substance  of  the  case,  and  holds 
all  parties  to  their  just  responsibility,  following  trust  property  into  the 
hands  of  remote  grantees  and  purchasers  who  have  taken  it  with  notice 
of  a  trust,  in  order  to  subject  it  to  the  trust.  The  objection,  therefore, 
that  a  court  of  equity  has  no  power  to  furnish  a  remedy  in  a  case  of 
this  character,  is  untenable. 

But  there  is  another  objection  to  the  bill  which  must  prevail. 
Equity  regards  diligence  as  one  of  its  important  elements ;  and  it  dis- 
countenances laches  as  inequitable ;  and  unreasonable  delay  to  prose- 
cute an  existing  claim  is  a  bar  to  a  bill  in  equity,  especially  when  the 
parties  cannot  be  restored  to  their  original  position,  and  injustice  may 
be  done.  Veazie  v.  Williams,  3  Story  R.  610.  Task  v.  Adams,  10 
Cush.  252.  Fuller  v.  Melrose,  1  Allen,  166.  Story  on  Eq.  §  1520  and 
note  3. 

In  this  case  there  has  been  unreasonable  delay.  The  bill  was  sworn 
to  March  9,  1860.  The  mortgage  complained  of  was  executed  August 
20,  1856,  and  the  lease  to  the  Boston  and  Lowell  Railroad  Company, 
October  1,  1858.  The  contracts  and  dealings  to  be  investigated  and 
readjusted  commenced  in  1850,  and  continued  till  the  execution  of  the 
mortgage,  and  even  to  the  execution  of  the  lease  in  1858.  Eveiy 
day's  delay  increased  the  complication  and  the  difficulty  of  making  an 
equitable  adjustment  of  them.  In  the  mean  time,  the  stock  in  the  cor- 
porations must  have  been  frequentty  changing  hands,  and  there  are 
no  means  of  adjusting  the  equities  growing  out  of  such  changes.  A 
similar  remark  is  applicable  to  the  holders  of  the  bonds  secured  by  the 
mortgage.  The  nature  of  the  case  required  the  utmost  diligence,  in 
order  to  prevent  injustice.  Yet  the  plaintiffs  delayed  more  than  three 
years  and  a  half  after  the  making  of  the  mortgage,  and  until  after  they 
had  sought  aid  from  the  legislature.  It  does  not  appear  that  they  had 
not  at  that  time  sufficient  knowledge  of  the  facts  to  enable  them  to 
prosecute,  or  that  they  have  since  gained  an}'  important  information  ; 
and  a  decree  such  as  the}'  now  seek  may  injuriously  affect  many  per- 
sons who  have  become  stockholders  or  bondholders  during  the  period 
of  this  delay.  For  this  reason  the  demurrer  is  sustained,  and  the  bill 
dismissed. 


FOSS   V.   HARBOTTLE.  267 


FOSS  v.   HARBOTTLE. 

1843.     2  Hare,  461.  J 

BILL  in  equity  by  Foss  and  Turton,  shareholders  in  a  corporation 
styled  the  Victoria  Park  Company,  on  behalf  of  themselves  and  all  other 
shareholders,  against  five  persons  who  had  been  directors,  and  also 
against  several  other  persons. 

The  case  stated  in  the  bill  was,  in  part,  as  follows  : 
At  or  after  the  formation  of  the  company  was  agreed  upon,  an  arrange- 
ment was  fraudulently  concerted  between  certain  parties  (including  a 
uiajorit}'  of  the  directors),  with  the  object  of  enabling  themselves  to 
derive  a  profit  or  personal  benefit  from  the  establishment  of  the  compan}'. 
The  arrangement  was,  that  certain  of  the  parties  should  be  appointed 
directors,  and  should  purchase  for  the  compan}-  certain  lands  owned 
and  by  other  parties  to  the  combination,  at  greatly 


increased  and  exorbitant  prices.  The  directors,  accordingly,  BeloTeFTEe 
passing  of  the  act,  agreed  to  purchase  certain  lands  at  rents  or  prices 
greatly  exceeding  those  at  which  the  vendors  had  purchased  the  same. 
After  the  passing  of  the  act  of  incorporation,  the  directors  and  their 
confederates  proceeded  to  carry  into  execution  the  previously  formed 
design  of  fraudulently  profiting  by  the  establishment  of  the  company 
and  at  its  expense.  The  directors,  accordingly,  on  behalf  of  the  company, 
purchased  from  themselves,  and  from  the  other  parties,  lands  charged 
with  chief  or  fee-fann  rents,  greatly  exceeding  the  rents  payable  to  the 
persons  from  whom  the  said  vendors  had  purchased  the  same.  By 
these  means,  the  company  took  the  land,  charged  not  only  with  the  chief 
rents  reserved  to  the  original  landowners,  but  also  with  additional  rents 
reserved  and  payable  to  the  immediate  vendors  (the  directors  et  als.). 
In  further  pursuance  of  the  same  fraudulent  design,  the  directors,  after 
purchasing  the  said  land  for  the  company,  applied  about  27,000/.  of  the 
monies  in  their  hands,  belonging  to  the  company,  in  the  purchase  or 
redemption  of  the  rents  so  reserved  to  themselves  and  their  associates, 
leaving  the  land  subject  onh*  to  the  chief  rent  reserved  to  the  original  land- 
owners. The  lands  purchased  by  defendants  were  re-sold  by  them  to  the 
company  at  a  profit  and  at  a  price  considerably  exceeding  the  real  value  of 
the  same.  Owing  to  the  sums  appropriated  by  the  directors  to  themselves, 
and  paid  to  others  in  reduction  of  the  increased  chief  rents,  and  payment  of 
such  rents,  and  owing  to  their  having  otherwise  misapplied  monies,  the 
funds  of  the  company  in  their  hands  were  exhausted,  and  they  raised  large 
sums  upon  mortgage  or  incumbrance  of  lands  and  property  of  the  corn- 
pan}',  which  they  had  no  authority  to  do  under  the  act  of  incorporation. 
Some  of  the  lands  thus  mortgaged,  though  the  equitable  property  of 
the  compan}-,  did  not  stand  in  the  name  of  the  company  ;  and  hence 

1  Statement  abridged.    Arguments  and  part  of  opinion  omitted.  —  ED. 


268  FOSS   V.   HAKBOTTLE. 

some  of  the  mortgagees  had  no  notice  of  want  of  authority  on  the  part 
of  the  mortgagors. 

The  bill  further  alleged,  that  there  had  ceased  to  be  a  sufficient 
number  of  directors  to  constitute  a  board  for  transacting  the  business 
of  the  companj' ;  and  that,  in  the  present  circumstances  of  the  com- 
pany and  of  the  board  of  directors,  the  shareholders  had  no  power  to 
take  the  property  of  the  company  out  of  the  hands  of  the  former 
directors,  or  to  appoint  directors  to  supply  the  vacancies,  or  to  wind  up, 
or  dissolve,  the  company,  without  the  assistance  of  the  court. 

The  bill  also  alleged,  that  the  defendants  concealed  from  the  plaintiffs 
and  the  other  shareholders  the  aforesaid  fraudulent  and  improper  acts  and 
proceedings  ;  and  that  plaintiffs  and  the  other  shareholders  had  only  re- 
cently  ascertained  the  particulars  thereof,  so  far  as  they  were  now  stated. 

The  bill  prayed,  that  an  account  might  be  taken  of  the  losses  and 
expenses  incurred  in  consequence  of  the  said  fraudulent  and  improper 
dealings  of  the  defendants  with  the  monies,  lands,  and  property  of  the 
company,  which  they  were  liable  to  make  good,  and  that  they  might  be 
respectively  decreed  to  make  good  the  same,  including  in  particular  the 
profits  made  by  buying  and  re-selling  the  said  land  ;  that  it  might  be 
declared  that  the  mortgages  upon  the  lands,  etc.,  created  as  aforesaid, 
so  far  as  regards  the  defendants  who  executed  the  same  or  were  privy 
thereto,  were  created  fraudulently  and  in  violation  of  the  provisions 
of  the  act,  and  that  certain  of  the  defendants  might  be  decreed  to  make 
good  to  the  company  the  principal  and  interest  due  upon  such  of  the 
mortgages  as  were  still  subsisting ;  that  inquiries  might  be  directed  to 
ascertain  which  of  the  mortgages  could  be  avoided  and  set  aside  as 
against  the  persons  claiming  the  benefit  thereof,  and  that  proceedings 
might  be  taken  for  avoiding  them  accordingly  ;  and  that  a  receiver 
might  be  appointed. 

Certain  of  the  defendants  demurred  to  the  bill,  assigning  for  cause, 
want  of  equity,  want  of  parties,  and  multifariousness. 

Lowndes,  Holt,  Walker,  and  Grlasse,  in  support  of  the  demurrers. 

James  Russell,  Roupell,  and  J3artrum,  for  the  bill. 

WIGIIAM,  VICE-CHANCELLOR.  The  relief  which  the  bill  in  this  case 
seeks,  as  against  the  Defendants  who  have  demurred,  is  founded  on 
several  alleged  grounds  of  complaint ;  of  these  it  is  only  necessar}-  that 
I  should  mention  two,  for  the  consideration  of  those  two  grounds 
involves  the  principle  upon  which  I  think  all  the  demurrers  must  be 
determined.  One  ground  is,  that  the  directors  of  the  Victoria  Park 
Company,  the  Defendants  Harbottle,  Adshead,  Byrom,  and  JBealey, 
have,  in  their  character  of  directors,  purchased  their  own  lands  of  them- 
selves for  the  use  of  the  company,  and  have  paid  for  them,  or,  rather, 
taken  to  themselves  out  of  the  monies  of  the  company  a  price  exceeding 
the  value  of  such  lands  :  the  other  ground  is,  that  the  Defendants  have 
raised  money  in  a  manner  not  authorized  by  their  powers  under  their 
act  of  incorporation  ;  and,  especiall}',  that  they  have  mortgaged  or 
incumbered  the  lands  and  propert}'  of  the  company,  and  applied  the 


FOSS  V.   HARBOTTLE.  269 

monies  thereby  raised  in  effect,  though  circuitous!}*,  to  pay  the  price  of 
the  land  which  the}-  had  so  bought  of  themselves. 

[Part  of  opinion  omitted.] 

For  the  present  purpose,  I  shall  assume  that  a  case  is  stated,  entitling 
the  company,  as  matters  now  stand,  to  complain  of  the  transactions 
mentioned  in  the  bill. 

The  Victoria  Park  Company  is  an  incorporated  body,  and  the  conduct 
with  which  the  Defendants  are  charged  in  this  suit  is  an  injury  not  to 
the  Plaintiffs  exclusively ;  yt^is  an  injury  to  the  whole  corporation  by 
individuals  whom  the  corporation  entrusted  with  ppw^a  to  h«  e-rpr^iaed - 
only  for  the  flood  of  tne  corporation.  And  from  the  case  of  the  Attor- 
ney- General  v.  Wwon^  (without  going  further),  it  may  be  stated  as 
undoubted  law,  that  a  bill  or  information  by  a  corporation  will  lie  to  be 
relieved  in  respect  of  injuries  which  the  corporation  has  suffered  at  the 
hands  of  persons  standing  in  the  situation  of  the  directors  upon  this 
record.  This  bill,  however,  differs  from  that  in  the  Attorney- General 
v.  Wilson  in  this,  —  that  instead  of  the  corporation  being  formally 
represented  as  plaintiffs,  the  bill  in  this  case  is  brought  by  two  indi-1 
vidual  corporators,  professedly  on  behalf  of  themselves  and  all  the  other! 
members  of  the  corporation,  except  those  who  committed  the  injuries 
complained  of,  —  the  plaintiffs  assuming  to  themselves  the  right  and 
power  in  that  manner  to  sue  on  behalf  of  and  represent  the  corporation 
itself. 

It  was  not,  nor  could  it  successfully  be  argued,  that  it  was  a  matter  of 
course  for  any  individual  members  of  a  corporation  thus  to  assume  to 
themselves  the  right  of  suing  in  the  name  of  the  corporation.  In  law,  the 
corporation,  and  the  aggregate  members  of  the  corporation,  are  not  the 
same  thing  for  purposes  like  this  ;  and  the  only  question  can  be,  whether 
the  facts  alleged  in  this  case  justify  a  departure  from  the  rule  which 
prima  facie  would  require  that  the  corporation  should  sue  in  its  own 
name  and  in  its  corporate  character,  or  in  the  name  of  some  one  whom 
the  law  has  appointed  to  be  its  representative. 

The  demurrers  are,  —  first,  of  three  of  the  directors  of  the  company, 
who  are  also  alleged  to  have  sold  lands  to  the  corporation  under  the 
circumstances  charged  ;  secondly,  of  Bealey,  also  a  director,  alleged  to 
have  made  himself  amenable  to  the  jurisdiction  of  the  Court  to  remedy 
the  alleged  injuries,  though  he  was  not  a  seller  of  land ;  thirdly,  of 
•Denison,  a  seller  of  land,  in  like  manner  alleged  to  be  implicated  in 
the  frauds  charged,  though  he  was  not  a  director ;  fourthly,  of  Mr. 
JSunting,  the  solicitor,  and  Mr.  Lane,  the  architect  of  the  company. 
These  gentlemen  are  neither  directors  nor  sellers  of  land,  but  all  the 
frauds  are  alleged  to  have  been  committed  with  their  privity,  and  they 
also  are  in  this  manner  sought  to  be  implicated  in  them.  The  most 
convenient  course  will  be,  to  consider  the  demurrer  of  the  three  against 
whom  the  strongest  case  is  stated ;  and  the  consideration  of  that  case 
will  apply  to  the  whole. 

i  Cr.  &  Ph.  1. 


270  FOSS   V.   HAKBOTTLE. 

The  first  objection  taken  in  the  argument  for  the  Defendants  was, 
that  the  individual  members  of  the  corporation  cannot  in  an}-  case  sue 
in  the  form  in  which  this  bill  is  framed.  During  the  argument  I  inti- 
mated an  opinion,  to  which,  upon  further  consideration,  I  fully  adhere, 
that  the  rule  was  much  too  broadly  stated  on  the  part  of  the  Defendants. 
I  think  there  are  cases  in  which  a  suit  might  properly  be  so  framed. 
Corporations  like  this,  of  a  private  nature,  are  in  truth  little  more  than 
private  partnerships ;  and  in  cases  which  may  easily  be  suggested,  it 
would  be  too  much  to  hold,  that  a  society  of  private  persons  associated 
together  in  undertakings,  which,  though  certainly  beneficial  to  the  public, 
are  nevertheless  matters  of  private  property,  are  to  be  deprived  of  their 
civil  rights,  inter  se,  because,  in  order  to  make  their  common  objects 
more  attainable,  the  crown  or  the  legislature  may  have  conferred  upon 
them  the  benefit  of  a  corporate  character.  Jf  a  case  should  arise  of 
injury  to  a  corporation  by  some  of  its  members,  for  which  no  adequate 
remedy  remained,  except  that  of  a  suit  by  individual  corporators  in 
/  their  private  characters,  and  asking  in  such  character  the  protection  of 
those  rights  to  which  in  their  corporate  character  they  were  entitled,  I 
cannot  but  think  that  the  principle  so  forcibly  laid  down  by  Lord  Cotten- 
ham  in  Wallworth  v.  Holt?  and  other  cases,  would  apply,  and  the 
claims  of  justice  would  be  found  superior  to  an}*  difficulties  arising  out 
of  technical  rules  respecting  the  mode  in  which  corporations  are  required 
to  sue. 

But,  on  the  other  hand,  it  must  not  be  without  reasons  of  a  very 
urgent  character  that  established  rules  of  law  and  practice  are  to  be 
departed  from,  —  rules,  which,  though  in  a  sense  technical,  are  founded 
on  general  principles  of  justice  and  convenience  ;  and  the  question  is, 
whether  a  case  is  stated  in  this  bill,  entitling  the  Plaintiffs  to  sue  in  their 
private  characters.  [His  Honor  stated  the  substance  of  the  act,  sec- 
tions 1,  38,  39,  43,  46,  47,  48,  49,  67,  70,  114,  and  129. 2J  The  result 
of  these  clauses  is,  that  the  directors  are  made  the  governing  body, 
subject  to  the  superior  control  of  the  proprietors  assembled  in  general 
meetings ;  and,  as  I  understand  the  act,  the  proprietors  so  assembled 
have  power,  due  notice  being  given  of  the  purposes  of  the  meeting,  to 
originate  proceedings  for  any  purpose  within  the  scope  of  the  company's 
,-  powers,  as  well  as  to  control  the  directors  in  any  acts  which  they  may 
have  originated.  There  may  possibly  be  some  exceptions  to  this  pro- 
position, but  such  is  the  general  effect  of  the  provisions  of  the  statute.. 

Now,  that  my  opinion  upon  this  case  may  be  clearly  understood,  I 
will  consider  separately  the  two  principal  grounds  of  complaint  to  which 
I  have  adverted,  with  reference  to  a  veiy  marked  distinction  between 
them.  The  first  ground  of  complaint  is  one  which,  though  it  might 
prirnS,  facie  entitle  the  corporation  to  rescind  the  transactions  com- 
plained of,  does  not  absolutely  and  of  necessity  fall  under  the  descrip- 
tion of  a  void  transaction.  The  corporation  might  elect  to  adopt  those 

1  4  Myl.  &  Cr.  635.    See  also  17  Ves.  320,  per  Lord  Eldon, 

2  Supra,  p.  464,  n.,  et  seq. 


FOSS   V.   HAKBOTTLE.  271 

transactions,  and  hold  the  directors  bound  by  them.  Inother  words, 
the  transactions  admit  of  confirmation  at  thejopjtion  of  the  corporation. 
Theseconcl  ground  or  complaint  may  stand  in  acTfEfaTunt  position;  I 
allude  to  the  mortgaging  in  a  manner  not  authorized  by  the  powers  of 
the  act.  This,  being  beyond  the  powers  of  the  corporation,  may  admit 
of  no  confirmation  whilst  any  one  dissenting  voice  is  raised  against  it. 
This  distinction  is  found  in  the  case  of  Preston  v.  The  Grand  Collier 
Dock  Company.1 

On  the  first  point,  it  is  only  necessary  to  refer  to  the  clauses  of  the 
act  to  shew,  that,  whilst  the  supreme  governing  body,  the  proprietors  at 
a  special  general  meeting  assembled,  retain  the  power  of  exercising  the 
functions  conferred  upon  them  by  the  act  of  incorporation,  it  cannot  be 
competent  to  individual  corporators  to  sue  in  the  manner  proposed  by 
the  Plaintiffs  on  the  present  record.  This  in  effect  purports  to  be  a  suit 
by  cestui  que  trusts,  complaining  of  a  fraud  committed  or  alleged  to 
have  been  committed  by  persons  in  a  fiduciaiy  character.  The  com- 
plaint is,  that  those  trustees  have  sold  lands  to  themselves,  ostensibly 
for  the  benefit  of  the  cestui  que  trusts.  The  proposition  I  have 
advanced  is,  that  although  the  act  should  prove  to  be  voidable,  the 
cestui  que  trusts  may  elect  to  confirm  it.  Now,  who  are  the  cestui  que 
trusts  in  this  case?  The  corporation,  in  a  sense,  is  undoubtedly  the 
cestui  que  trust ;  but  tlie~giujui  ity  of  TnT^rbprietors~aTlr5pl^aI  general 
meeting  assembled,  independently  of  any  general  rules  of  law  upon  the 
subject,  Dy  the  very  fel'Uib  of  "the  incorporation  in  the  present  case,  has 
power  to_bingjptie  wnole  body,  and  every  individual  corporator  must  be 
taken  to  have  come  into  the  corporation  upon  the  terms  of  being  liable 
to  be  so  bound.  How  then  can  this  Court  act  in  a  suit  constituted  as 
this  is,  if  it  is  to  be  assumed,  for  the  purposes  of  the  argument,  that  the 
powers  of  the  bod}'  of  the  proprietors  are  still  in  existence,  and  may 
lawfully  be  exercised  for  a  purpose  like  that  I  have  suggested?  \Yhilst 
the  Court  may  be  declaring  the  acts  complained  of  to  be  void  at  the 
suit  of  the  present  Plaintiffs,  who  in  fact  may  be  the  only  proprietors  who 
disapprove  of  them,  the  governing  body  of  proprietors  may  defeat  the 
decree  by  lawfullyresolving  upon  the  confirmation  of  the  very  ..acts 
which  are  the  subject  of  the  suit.  The  very  fact  that  the  governing 

T)ol!y~of~proprietors  assembled  at  the  special  general  meeting  may  so  bind 
even  a  reluctant  minority,  is  decisive  to  shew  that  the  frame  of  this 
suit  cannot  be  sustained  whilst  that  body  retains  its  functions.  In^pj'der 
then  that  this  suit  may  be  sustained,  it  must  be  shewn  either  that  there  / 
is  no  such  power  as  I  have  supposed  remaining  in  the  proprietors,  or.  at 
least,  that  all  means  have  been  resorted  to  and  found  ineffectual  to  set 

ThaTbody  in  motion  :  this  latter  point  is  nowhere  suggested  in  the  bill : 
there  .is  no  suggestion  that  an  attempt  has  been  made  by  any  proprietor 
to  set  the  body  of  proprietors  in  motion,  or  to  procure  a  meeting  to  be 
convened  for  the  purpose  of  revoking  the  acts  complained  of.  The 

1  11  Sim.  327,  S.  C.;  2  Railway  Cases,  335. 


272  FOSS   V.   HAKBOTTLE. 

question  then  is,  whether  this  bill  is  so  framed  as  of  necessit}*  to  exclude 
the  supposition  that  the  supreme  body  of  proprietors  is  now  in  a  condi- 
tion to  confirm  the  transactions  in  question  ;  or,  if  those  transactions 
are  to  be  impeached  in  a  court  of  justice,  whether  the  proprietors  have 
not  power  to  set  the  corporation  in  motion  for  the  purpose  of  vindicating 
its  own  rights. 

[The  learned  judge  then  controverted  the  plaintiff's  position  that, 
upon  the  allegations  of  the  bill,  it  must  be  regarded  as  impossible  to 
now  legally  convene  a  general  meeting  of  the  shareholders.  He  was  of 
opinion  that  certain  clauses  in  the  act  were  merely  directory,  and"  that 
a  general  meeting  could  be  called  even  if  the  corporation  lacked  certain 
officers.  He  also  held,  "that  the  existence  of  a  board  of  directors  de 
facto  is  sufficiently  apparent  upon  the  statements  in  the  bill."  In  this  dis- 
cussion he  said  —  "I  have  applied  strictly  the  rule  of  making  every  in- 
tendment  against  the  pleader  in  this  case,  .  .  . :  "  also  —  "...  I  have  felt 
bound  in  favor  of  the  defendants  to  construe  this  bill  with  strictness."] 

The  second  point  which  relates  to  the  charges  and  incumbrances 
alleged  to  have  been  illegally  made  on  the  property  of  the  company  is 
open  to  the  reasoning  which  I  have  applied  to  the  first  point,  upon  the 
question  whether,  in  the  present  case,  individual  members  are  at  liberty 
to  complain  in  the  form  adopted  by  this  bill ;  for  why  should  this 
anomalous  form  of  suit  be  resorted  to,  if  the  powers  of  the  corporation 
ma}T  be  called  into  exercise?  But  this  part  of  the  case  is  of  greater 
difficulty  upon  the  merits.  I  follow,  with  entire  assent,  the  opinion 
expressed  by  the  Vice  Chancellor  in  Preston  v.  The  Grand  Collier  Dock 
Company,  that,  if  a  transaction  be  void,  and  not  merely  voidable,  the 
corporation  cannot  confirm  it,  so  as  to  bind  a  dissenting  minority  of  its 
members.  But  that  will  not  dispose  of  this  question.  The  case  made 
with  regard  to  these  mortgages  or  incumbrances  is,  that  they  were  exe- 
cuted in  violation  of  the  provisions  of  the  act.  The  mortgagees  are  not 
defendants  to  the  bill,  nor  does  the  bill  seek  to  avoid  the  security  itself, 
if  it  could  be  avoided,  on  which  I  give  no  opinion.  The  bill  prays 
inquiries  with  a  view  to  proceedings  being  taken  aliunde  to  set  aside 
these  transactions  against  the  mortgagees.  The  object  of  this  bill 
against  the  defendants  is  to  make  them  individually  and  personally 
responsible  to  the  extent  of  the  injury  alleged  to  have  been  received  by 
the  corporation  from  the  making  of  the  mortgages.  Whatever  the  case 
might  be,  if  the  object  of  the  suit  was  to  rescind  these  transactions, 
and  the  allegations  in  the  bill  shewed  that  justice  could  not  be  done  to 
the  shareholders  without  allowing  two  to  sue  on  behalf  of  themselves 
and  others,  very  different  considerations  arise  in  a  case  like  the  present, 
in  which  the  consequences  only  of  the  alleged  illegal  acts  are  sought  to 
be  visited  personally  upon  the  directors.  The  money  forming  the  con- 
sideration for  the  mortgages  was  received,  and  wasexpended  in,  or 
partly  in,  the  transactions  which  are  the  subject  of  the  first  ground  of 
complaint.  Upon  this,  one  question  appears  to  me  to  be,  whether  the 
company  could  confirm  the  former  transactions,  take  the  benefit  of  the 


AT  WOOL   V.   MERRYWEATHER.  273 

money  that  has  been  raised,  and  yet,  as  against  the  directors  personally, 
complain  of  the  acts  which  they  have  done,  by  means  whereof  the  com- 
pany obtains  that  benefit  which  I  suppose  to  have  been  admitted  ana 
adopted  by  such  coTImTiSatipn^  I  think  it  woukTnot  be  open  to  tne 
Tiompany  to  do  this ;  and  my  opinion  already  expressed  on  the  first 
point  is,  that  the  transactions  which  constitute  the  first  ground  of  com- 
plaint may  possibly  be  beneficial  to  the  company,  and  maj-  be  so 
regarded  by  the  proprietors,  and  admit  of  confirmation.  I  am  of 
opinion  that  this  question,  —  the  question  of  confirmation  or  avoidance, 
—  cannot  properly  be  litigated  upon  this  record,  regard  being  had  to 
the  existing  state  and  powers  of  the  corporation,  and  that  therefore 
that  part  of  the  bill  which  seeks  to  visit  the  directors  personally  with 
the  consequences  of  the  impeached  mortgages  and  charges,  the  benefit 
of  which  the  company  enjoys,  is  in  the  same  predicament  as  that  which 
relates  to  the  other  subjects  of  complaint.  Both  questions  stand  on  the 
same  ground,  and,  for  the  reasons  which  I  stated  in  considering  the 
former  point  these  demurrers  must  be  allowed. 


ATWOOL   v.   MERRYWEATHER. 

1867.     L.  R.  5  Eg.  Cases,  464,  note. 

THIS  was  a  bill  by  the  Plaintiff,  on  behalf  of  himself  and  all  other  the 
shareholders  in  the  East  Pant  Du  United  Lead  Mining  Company, 
Limited,  except  the  persons  who  were  Defendants  thereto,  against 
Samuel  Merryweather,  Henry  Whiticorth,  and  the  East  Pant  Du 
Company,  Limited,  for  the  purpose  of  setting  aside  a  contract  for  the 
sale  and  purchase  of  certain  mines  (for  the  purpose  of  purchasing  and 
working  which  the  company  was  formed),  and  compelling  repa3-ment 
from  Merryweather  and  Whitworth  of  the  sum  of  £3940,  or  such  por- 
tions as  had  been  received  by  them,  and  a  return  of  the  600  shares 
allotted  to  Merryweather. 

The  bill  stated  the  incorporation,  in  1863,  of  the  compan}'  under  the 
promotion  of  Defendants  Merryweather  and  Whitworth,  who  published 
a  prospectus  stating  that  the  company  was  formed  "  for  the  purpose  of 
purchasing  and  working  the  extensive  and  valuable  mining  sets  known 
as  the  East  Pant  Du  and  Colomendy  Lead  Mines,'"  and  containing 
very  favourable  representations  of  the  value  of  the  mines,  for  the  pur- 
chase of  which  the  compan}-  was  stated  to  have  arranged  for  £7000  — 
£4000  to  be  paid  in  cash,  and  £3000  in  shares  of  the  company'. 

The  capital  was  fixed  at  £30,000,  divided  into  6000  shares  of  £5  each  ; 
but  onl}-  2000  shares  had  been  taken  altogether,  on  which  £3940  had 
been  received.  This  money  was  paid  to  Merryweather,  and  600  shares 

18 


274  ATWOOL   V.   MEKRYWEATHEK. 

were  registered  in  his  name  as  paid  up,  in  part  payment  of  the  £7000, 
the  alleged  price  of  the  mines. 

Upon  inquiries,  the  following  circumstances  were  discovered  in  refer- 
ence to  the  formation  of  the  company :  Merryweather  applied  to 
Whitworth  to  assist  him  in  disposing  of  the  mines  in  question,  which 
he  held  under  an  agreement  for  a  lease  for  twenty-one  years,  and  had 
then  discovered  to  be  of  no  value.  Merryweather  proposed  to  dispose 
of  his  interest  for  £4000,  and  the  scheme  concocted  between  himself 
and  Whitworth  was,  that  a  company  should  be  formed  for  the  purpose 
of  purchasing  and  working  the  mines,  which  were  to  be  sold  to  such 
company  for  £7000. 

Of  this  money  Merryweather  was  to  get  £4000,  while  the  remaining 
£3000  was  to  be  paid  to  Whitworth  for  his  assistance  in  getting  up  the 
company.  This  agreement  was  concealed  from  the  other  directors, 
who  were  induced  to  believe  that  £7000  was  bond,  fide  to  be  paid  as  the 
purchase-money. 

A  committee  appointed  at  a  meeting  of  the  1st  of  June,  1864,  recom- 
mended by  their  report  that  the  undertaking  should  be  abandoned, 
steps  taken  to  relieve  the  company  from  any  liability  on  the  contract, 
and  to  recover  back  the  money  already  paid  by  the  shareholders. 

At  an  extraordinary  general  meeting  held  on  the  16th  of  June,  1864, 
a  resolution  was  passed  for  receiving  the  report  by  a  majority  of 
the  shareholders,  and  on  the  30th  of  June,  1864,  a  bill  was  filed  in  the 
name  of  the  company,  alleging  that  the  contract  for  the  purchase  of  the 
mine  had  been  fraudulently  obtained  by  the  Defendant  Merryweather, 
and  was  void,  and  that  he  was  not  entitled  to  the  600  shares  allotted 
to  him  in  respect  of  it,  and  praying  that  the  purchase  of  the  mine 
might  be  set  aside,  and  the  money  paid  returned  to  the  shareholders 
who  had  advanced  it. 

On  the  6th  of  July  Merryweather  and  Whitworth  caused  notices  to 
be  issued  for  a  meeting  of  the  board  of  directors  "  to  consider  the 
course  to  be  taken  in  reference  to  the  Chancery  proceedings  which 
have  been  instituted  in  the  name  of  the  company."  At  the  meeting 
held  on  the  9th  of  July  Merryweather,  Whitworth  and  Ashworth  (tlfe 
three  out  of  the  six  directors  present  at  the  meeting)  passed  a 
resolution  that  proceedings  should  be  taken  to  get  the  bill  taken 
off  the  file. 

On  the  1st  of  August,  1864,  the  Court  was  moved  to  take  the  bill  off 
the  file,  but  the  motion  was  ordered  to  stand  over  until  the  next  term 
I  in  order  to  give  an  opportunity  to  call  a  general  meeting  of  the  share- 
holders of  the  company  to  take  the   matter   into   consideration.     A 
meeting  was  accordingly  held  on  the  12th  of  October,  "  for  the  purpose 
of  taking  the  said  bill  into  consideration,  and  adopting  such  resolutions 
in  reference  thereto  as  the  meeting  maj-  determine  upon." 

A  resolution  was  proposed  for  adopting  and  continuing  the  Chancery 
proceedings,  whereupon  an  amendment  was  proposed  b}-  Whitworth 
for  referring  all  matters  in  difference  between  the  shareholders  and 


ATWOOL   V.   MERRYWEATHER.  275 

Merryweather  to  arbitration,  and  for  staying  all  legal  proceedings. 
This  amendment  was  lost  by  11  votes  to  4  upon  a  show  of  hands, 
and  the  original  resolution  was  carried  by  10  to  4.  A  poll  having  been 
demanded  upon  the  amendment,  proxies  were  produced,  and  14  per- 
sons, holding  altogether  1070  shares  and  324  votes,  voted  against  the 
amendment,  and  12  persons,  holding  1490  shares  and  having  344 
votes,  voted  for  the  amendment.  But  excluding  the  votes  of  the 
Defendants  Merryweather  and  Whitworth,  there  was  a  majority  of  86 
votes  against  the  amendment,  and  excluding  only  the  votes  of  Merry- 
weather  there  was  a  majority  against  it  of  58  votes.  The  motion 
to  take  the  bill  off  the  file  was  renewed,  and  on  the  5th  of  December, 
1864,  the  Vice-Chancellor  Sir  W.  P.  Wood  directed  the  bill  to  be 
taken  off  the  file,  but  made  no  order  as  to  the  costs  of  the  motion. 
(See  2  H.  &  M.  254.) 

The  present  bill,  which  was  filed  on  the  14th  of  December,  1864,  by 
a  holder  of  100  shares  in  the  company  (purchased  on  the  faith  of  the 
statements  contained  in  the  prospectus),  suing  on  behalf  of  himself 
and  all  other  the  shareholders  in  the  East  Pant  Du  Company,  except 
the  Defendants,  against  Merryweather,  Whitworth,  and  the  company 
as  Defendants,  alleged  that  none  of  the  shareholders  in  the  companj- 
other  than  the  Defendants  were  desirous  that  the  contract  with  Merry- 
weather  should  be  carried  into  effect,  or  that  the  relief  prayed  should 
not  be  granted  ;  that  the  Defendants  had  altogether  106  votes  as  share- 
holders in  the  company,  and  obtained  the  proxies  of  the  other  share- 
holders who  voted  for  the  amendment  b}'  entering  into  engagements  to 
indemnify  them  against  loss  ;  "  and  such  votes,  together  with  the  afore- 
said 106  votes  of  the  said  Defendants,  constitute  a  majority  of  the 
shareholders'  votes  in  the  company." 

The  bill  also  alleged,  that  even  without  such  proxies  the  106  votes 
held  by  the  Defendants  made  it  impossible  to  obtain  a  fair  decision  at 
a  general  meeting. 

The  bill  further  charged,  that  the  contract  was  obtained  b\-  misrep- 
resentations as  to  the  value,  with  full  knowledge  by  the  Defendants 
that  the  mines  were  worthless,  that  £4000  was  an  exorbitant  price  for 
them,  and  that  no  other  portion  of  the  £7000  was  ever  intended  to 
be  treated  as  purchase-money  of  the  mines,  but  was  intended  to  be 
paid  to  Whitworth,  the  Defendants  having  become  promoters  of  the 
company  soleh-  for  the  purpose  of  raising  the  £7000  for  their  own  pri- 
vate benefit ;  that  these  facts  were  fraudulently  concealed  from  the 
other  directors  and  shareholders,  and  that  if  they  had  been  disclosed 
the  company  never  would  have  contracted  to  purchase  the  mines.  The 
bill  prayed  that  the  contract  for  the  purchase  of  the  mine  might  be  set 
aside,  and  a  return  of  tlie  money  and  shares  received  by  Whitworth 
and  Merryweather;  and  an  injunction  to  restrain  any  proceeding  to 
recover  the  balance  of  the  purchase-money ;  compensation  for  all 
damage  and  loss  occasioned  to  the  company,  and,  if  necessary,  that  the 
company  might  be  dissolved  and  wound  up  under  the  direction  of  the 
Court. 


276  AT  WOOL   V.   MERRY  WEATHER. 

Mr.  Kay,  Q.  C.,  and  Mr.  Fry,  for  the  Plaintiff :  — 

A  sufficient  case  of  fraud,  collusion,  and  suppression  has  been  shewn 
to  enable  the  Court  to  set  aside  the  contract,  and  it  is  competent  for 
an  individual  shareholder  to  maintain  a  suit  for  setting  aside  the  con- 
tract, even  if  such  suit  were  opposed  by  a  majority  of  the  shareholders. 
But  that  is  not  the  case  here,  as,  by  excluding  the  votes  of  Merry- 
weather,  there  is  a  majority  in  favour  of  setting  aside  the  purchase  and 
winding  up  the  compan}- :  Bromley  v.  Smith  (1  Sim.  8) ;  Preston  v. 
Grand  Collier  Dock  Company  ( 1 1  Sim.  327);  Sickens  v.  Congreve 
(4  Russ.  562)  ;  Beck  v.  Eantorowicz  (3  K.  &  J.  230) ;  Lovell  v. 
Hicks  (2  Y.  &  C.  Ex.  46,  481). 

Mr.  Druce,  Q.  C.,  and  Mr.  A.  E.  Miller,  for  Merry  weather's  assig- 
nee :  — 

Upon  the  frame  of  the  suit,  the  contract  is  not  void,  but  merely 
voidable,  and  the  majority  of  the  shareholders  may  confirm  it,  and 
bind  the  whole  body  for  that  purpose.  The  suit,  therefore,  in  its  pres- 
ent form,  is  improperly  framed  :  foss  v.  Harbottle  (2  Hare,  461,494)  ; 
and  the  proper  course  would  have  been  for  the  Plaintiff  to  have  filed  a 
bill  for  leave  to  use  the  name  of  the  company  against  the  parties  to  the 
contract.  Assuming  the  price  paid  for  the  mine  to  have  been  excess- 
ive, the  Plaintiff  may  have  a  case  for  making  the  directors  account,  but 
that  affords  him  no  locus  standi  as  against  the  vendors  for  setting 
aside  the  contract:  Pulsford  v.  Richards  (17  Beav.  87)  ;  Fraser\. 
Whalley  (2  H.  &  M.  10). 

Mr.  Horsey,  for  Whitworth's  assignee. 

Mr.  Charles  Hall,  for  the  company. 
SIR  W.  PAGE  WOOD,  V.  C. :  — 

I  think  that,  upon  principle,  a  contract  of  this  kind  cannot  stand, 
and  that  there  is  not  such  a  defect  in  the  constitution  of  the  suit  as 
would  be  fatal  according  to  the  authority  of  .Foss  v.  Harbottle  (2  Hare, 
461). 

Looking  at  the  facts  as  the}-  come  out,  I  am  clearly  of  opinion  that 
this  arrangement,  b}'  which  Merryweather  was  to  have  £4000  and 
Whitworth  £3000,  was  concealed  from  everybody,  and  that  Merry- 
weather  assisted  in  that  concealment  by  allowing  his  name  to  appear  as 
the  sole  vendor,  and  taking  the  purchase-money. 

Upon  such  a  transaction  the  Court  will  hold  that  the  whole  contract 
is  a  complete  fraud.  I  do  not  in  the  least  say  that  where  persons  with 
their  eyes  open  know  that  the  agent  who  secures  them  the  bargain 
is  going  to  take  mone}"  for  it,  that  would  not  be  all  right  enough.  If  the 
company  knew  this  gentleman  was  to  have  this  amount  as  promotion- 
money,  well  and  good.  There  might  have  been  some  difficult}',  Mr. 
Whitworth  being  a  director,  if  it  had  been  a  sale  by  Merryweather  and 
Whitworth  eo  nomine,  both  of  them  together.  If  that  had  been  the 
case  more  might  have  been  said  about  the  frame  of  the  suit.  But  here 
it  is  a  simple  fraud,  and  nothing  else.  Merryweather  knowing  Whit- 
worth's  position  with  regard  to  the  company,  and  that  as  an  honest 


ATWOOL   V.   MERRYWEATHER.  277 

man  Whitworth  was  bound  to  tell  the  company  what  price  he  bought 
the  mines  for,  agreed  that  the  mine  should  be  sold  to  the  company  for 
£7000,  and  that  the  real  price,  £4000,  should  not  be  disclosed  to  the 
com  pan}*. 

With  regard  to  the  frame  of  the  suit,  a  question  of  some  nicety  arises 
how  far  such  relief  can  be  given  at  the  instance  of  a  shareholder  on 
behalf  of  himself  and  other  shareholders  on  the  ground  that  the  trans- 
action might  be  confirmed  by  the  whole  body  if  the}1  thought  fit,  and 
that  the  case  would  fall  within  Foss  v.  Harbottle,  according  to  which 
the  suit  must  be  by  the  whole  company.  On  the  previous  occasion, 
when  it  was  desired  to  take  proceedings  to  set  aside  this  transaction,  a 
gentleman  took  upon  himself  to  file  a  bill  in  the  name  of  the  company. 
A  motion  was  made  to  take  that  bill  off  the  file,  as  the  person  filing  the 
bill  was  not  the  solicitor  of  the  company,  and  was  not  authorized 
to  file  the  bill,  and  I  ordered  the  bill  to  be  taken  off  the  file.  There 
was  a  majority  against  setting  aside  this  transaction.  The  number  of 
votes  for  rescinding  the  transaction  was  324,  and  344  the  other  way. 
But  Merryiceather ,  in  respect  of  the  shares  obtained  by  this  sale,  which 


bt 

k- 
11  I 


I    have  held  cannot  stand,   had    78   votes,  and    Whitworth  28,  mak-  |       x 


ing  altogether    106    out  of  the  344.     If  I 

o  o  _«-•« 

could  be  filed  by  shareholders  to  get  rid  of  the  transaction  on  Jibe 
jrrolimloT  the  doctrine  of  J*'oss  v-  Uarnottle.  it  would  he  simply  im- 
possible"tb  set  aside  a  fraud  committed  by  a  director  under  such  cir- 
cmfistances,  as  the  director  obtaining  so  many  shares  by  fraud  would 
always  Be"  able  to  outvote  ever}'  bod  v  else.  1  held  on  a  former  occasion, 
and  1  adhere  to  that  decision,  that  the  Court  must  first  be  satisfied 
that  the  Plaintiffs  were  authorized  to  call  themselves  the  company,  the 
solicitor  who  put  the  bill  upon  the  file  having  no  retainer  under  the 
corporate  seal. 

This  bill  being  filed  by  the  Plaintiff  on -behalf  of  himself  and  the  other 
shareholders,  it  is  suggested  that  the  proper  course  would  be  to  file  a 
bill  on  behalf  of  himself  and  the  other  shareholders  for  leave  to  use  the 
name  of  the  company,  in  order  to  set  aside  that  contract.  I  do  not 
Think  that  circuitous  course  is  necessary  under  any  circumstances.  It 
is  quite  clear  that  it  is  not  necessary  here,  because  in  this  case  the  pur- 
chase of  the  mines  is  the  only  thing  for  which  this  company  was  incor- 
porated. It  appears  to  me  that  it  would  not  be  competent  for  a  major- 
ity of  the  shareholders  against  a  minority  to  say  that  they  insist  upon 
a  matter  of  that  kind  where  the  whole  inception  of  the  company  is 
simply  a  motion  by  a  fraudulent  agent,  quct  director,  to  confirm  a  pur- 
chase as  made  for  £7000,  which  was  made  for  £4000.  The  whole 
thing  was  obtained  by  fraud,  and  the  persons  who  may  possibly  form  a 
majority  of  the  shareholders,  could  not  in  any  way  sanction  a  transac-  " 
tion  of  that  kind. 

I  think  in  this  particular  case  it  is  hardly  necessary  to  rely  upon 
that,  because,  having  it  plainly  before  me  that.  I  have  a  majority  of  the 
shareholders,  independent  of  those  implicated  in  the  fraud,  supporting 


278  BRONSON   V.   LA   CROSSE,   ETC.    RAILROAD   CO. 

the  bill,  it  would  be  idle  to  go  through  the  circuitous  course  of  saying 
that  leave  must  be  obtained  to  file  a  bill  for  the  company,  and  pro 
forma  have  a  totally  different  litigation.  The  only  course  now  to  take 
is  to  set  aside  the  contract  for  sale  and  purchase  of  the  mines,  and 
cancel  the  agreement  for  such  sale.  The  purchase-mono}*  must  be  re- 
paid with  interest,  and  the  share  certificates  given  to  Merry nceather, 
delivered  up.  The  profits  made  by  the  company  to  be  set  off,  and  the 
company  to  have  a  lien  for  the  balance.  I  shall  also  declare  that  the 
company  ought  to  be  wound  up. 


BRONSON  ET  AL.  v.  LA   CROSSE  &  MILWAUKIE  RAILROAD 

CO.     ET     ALS. 
1863.     2  Wallace,  283.1 

BILL  in  equity,  in  U.  S.  Circuit  Court  for  District  of  Wisconsin,  to 
foreclose  a  mortgage  made  by  La  Crosse  &  Milwaukie  R.  Co. 

The  Milwaukie  &  Minnesota  R.  Co.  was  also  made  a  party  defendant. 
This  company  had  been  organized  upon  a  sale  of  the  La  Crosse  & 
Milwaukie  R.  Co.  under  another  mortgage,  junior  to  that  under  which 
the  present  plaintiffs  claim.  The  Milwaukie  &  Minnesota  R.  Co.  did 
not  appear,  but  permitted  the  bill  to  be  taken  as  confessed. 

After  the  time  had  expired  within  which  the  Milwaukie  and  Minnesota 
Railroad  Company  ought  to  have  answered,  but  before  an  order  had 
been  entered  taking  the  bill  against  them  pro  confesso,  one  J.  S. 
Rockwell,  a  stockholder  of  the  said  company,  presented  to  the  court 
his  petition,  charging  collusion  between  the  complainants  or  their  agents 
and  one  Russell  Sage,  President  of  the  said  Milwaukie  and  Minnesota 
Company,  to  secure  a  foreclosure  and  sale  in  their  cause,  for  the  pur- 
pose of  extinguishing  the  rights  of  the  said  Milwaukie  and  Minnesota 
Company,  which  was  alleged  to  be  the  owner  of  the  equity  of  redemp- 
tion of  the  mortgaged  premises ;  and  that  the  Presjcjejit  of  the  said 
last-named  company,  although  requested  by  its  stockholders,  had  de- 
clined to  make  any  defence  in  this  cause.  The  petition  prayed  leave 
to  defend  the  b\R^~rc~on  the  part  of  said  company,  as  a  defendant 
therein,  and  to  be  let  in  and  allowed  to  make  such  defence  as  he  may 
be  advised  is  proper  or  necessary,  in  the  place  of  said  company,  as  a 
party  defendant  to  said  action,  and  for  a  reasonable  time  to  prepare 
and  file  his  answer."  Upon  this  petition,  the  court  "ordered  that  the 
said  Rockwell  be,  and  hereby  is,  allowed  to  make  defence  to  this  bill 
in  the  name  of  said  Milwaukie  and  Minnesota  Railroad  Company,  to 
the  same  extent  as  the  said  company  could  do,  under  the  rules  and 
practice  of  this  court."  In  pursuance  of  this  order,  Rockwell  filed  his 

1  Statement  abridged,  arguments  omitted.  Only  so  much  of  case  is  given  as 
relates  to  one  point.  —  ED. 


BRONSON  V.   LA  CROSSE,   ETC.   RAILROAD   CO.  279 

answer,  entitled  "  The  separate  answer  of  J.  S.  Rockwell,  who,  by  the 
order  of  this  court,  is  allowed  to  make  defence  to  the  bill,  &c.,  in  the 
name  of  the  Milwaukie  and  Minnesota  Railroad  Compan}-."  This 
answer  was  signed  by  Rockwell  individually. 

Fleming,  another  stockholder  of  the  Milwaukie  and  Minnesota  Com- 
pany, presented  a  petition,  charging  collusion,  as  before  charged  in  the 
petition  of  Rockwell,  apparently  upon  the  theory  that  Rockwell's  was 
his  individual  answer,  and  not  that  of  the  company,  and  praying  leave 
"to  put  in  an  answer  for  said  Milwaukie  and  Minnesota  Railroad  Com- 
pany, and  that  said  company  ma}'  have  thirty  days'  time  to  perfect 
the  same,  and  prepare  a  cross-bill  as  shall  be  necessary."  Upon  this 
petition,  the  court  "  ordered  that  the  said  Fleming  have  leave  to  put  in 
answer  in  the  name  of  the  Milwaukie  and  Minnesota  Railroad  Com- 
pany." Under  this  order,  Fleming  filed  an  answer,  entitled,  "  The 
answer  of  the  Milwaukie  and  Minnesota  Railroad  Company,  one  of  the 
defendants  to  the  bill,"  &c.  This  answer  was  signed  "  The  Milwaukie 
and  Minnesota  Railroad  Company,  b}-  A.  Fleming,  stockholder ; "  and 
also,  "  A.  Fleming,  stockholder  of  the  Milwaukie  and  Minnesota  Rail- 
road Compan}-."  The  complainants  filed  replications  to  these  answers, 
entitled  "Replications,  &c.,  to  the.  answer  of  J.  S.  Rockwell,"  and 
"Replication,  &c.,  to  the  answer  of  the  Milwaukie  and  Minnesota 
Railroad  Company." 

Mr.  Carpenter,  for  defendants. 

Messrs.  Carlisle  and  J.  S.  Brown,  contra. 

NELSON,  J.  As  the  two  stockholders  (Rockwell  and  Fleming), 
though  not  made  defendants  by  the  bill,  were  permitted,  b}-  leave  of 
the  court,  to  appear  and  put  in  answers  in  the  name  of  the  Milwaukie 
and  Minnesota  Company,  it  is  material  to  inquire  into  the  effect  to  be 
given  to  them.  That  the}'  cannot  be  regarded  as  the  answers  of  the 
corporate  body  is  manifest,  as  a  corporation  must  appear  and  answer 
To~tne  Din,  not  under  oath,  but  imdgr  its  commo_n^  jeal.  And  an  omission 
thus  to  appear  and  answer  according  to  the  rules  and  practice  of  the 
court,  entitle  the  complainants  to  enter  an  order  that  the  bill  be  taken 
pro  cortfesso.  A  further  objection  to  the  practice  of  permitting  a  party 
to  appear  and  answer  in  the  name  of  the  corporation  is  the  inequality 
that  would  exist  between  the  parties  to  the  litigation.  The  corporation 
not  being  before  the  court,  it  would  not  be  boundJmanyjrder  or  decree 
rendered  against  it.  nor  by  any  admissions  made  in  the  answer  or 
stipulations  tha^ might  be  entered  into  by  the  parties  or  their  pntm^l 
Iris  Ibiig^apparent,  that  while  the  name  of  the  corporation  is  thus 
used  as  a  real  party  in  the  litigation  so  far  as  the  rights  and  interests 
of  the  complainants  are  concerned,  it  is  an  unreal  and  fictitious  party 
so  far  as  respects  any  obligation  or  responsibility  on  the  part  of  the 
respondents. 

It  is  insisted,  however,  that  the  directors  of  this  company  refused 
to  appear  and  defend  the  bill  filed  against  them,  and  for  the  fraudulent 
purpose  of  sacrificing  the  interests  of  the  stockholders  ;  and,  hence,  the 


280  DAVENPORT   V.   DOWS. 

necessit}*,  as  well  as  the  propriety  and  justice,  of  permitting  the  defence 
by  a  stockholder  in  their  name. 

Undoubtedly,  in  the  case  supposed,  it  would  be  a  reproach  to  the 
law,  and  especially  in  a  court  of  equity,  if  the  stockholders  were 
remediless.  But  in  such  a  case,  the  court  in  its  discretion  will  permit 
a  stockholder  to  become  a  party  defendant,  for  the  purpose  of  pro- 
tecting his  own  interests  against  unfounded  or  illegal  claims  against 
the  company ;  and  he  will  also  be  permitted  to  appear  on  behalf  of 
other  stockholders  who  may  desire  to  join  him  in  the  defence.  JBut 
this  defence  is  independent  of  the  company  and  of  its  directors,  and 
the  stockholder  becomes  a  real  and  substantial  party  to  the  extent  of 
his  own  interests  and  of  those  who  may  join  him,  and  against  whom 
any  proceeding,  order,  or  decree  of  the  court  in  the  cause  is  binding, 
and  may  be  enforced.  It  is  true,  the  remedy  is  an  extreme  one,  and 
shouTcT  Ibe  admitted  by  the  court  with  hesitation  and  caution  ;  but  it 
grows  out  of  the  necessity  of  the  case  and  for  the  sake  of  justice,  and 
may  be  the  on\y  remedy  to  prevent  a  flagrant  wrong.  A  complainant, 
if  he  chooses,  may  compel  a  corporation  to  appear  and  answer  by  a 
writ  of  distringas ;  or  he  may  join  with  the  corporation,  a  director,  or 
officer,  if  he  desires  a  discover}-  under  oath.  But  we  are  not  aware 
of  any  other  except  a  complainant  who  can  compel  an  appearance  or 
answer. 

Now,  although  the  appearance  and  answers  of  the  stockholders 
(Rockwell  and  Fleming)  were  irregularly  allowed  by  the  court,  as  each 
was  permitted  to  appear  and  answer  in  the  name  of  the  company,  3~et, 
as  the  defence  set  up  is  doubtless  the  same  as  that  which  they  would 
have  relied  on  if  they  had  been  admitted  simply  as  stockholders,  we 
are  inclined  to  regard  the  answers  the  same  as  if  put  in  by  them  in 
that  character,  in  the  further  views  we  shall  take  of  the  case.  Each 
one  swore  to  the  truth  of  his  answer  in  the  usual  way. 

[Remainder  of  opinion  omitted.] 


DAVENPORT  v.  DOWS. 

1873.     18  Wallace  (U.  S.),  626. 

APPEAL  from  the  Circuit  Court  for  the  District  of  Iowa. 

Dows,  a  citizen  of  New  York,  in  behalf  of  himself  and  all  other  non- 
resident citizens  of  Iowa,  who  were  stockholders  in  the  Chicago,  Rock 
Island,  and  Pacific  Railroad  Company,  filed  a  bill  in  the  court  below 
against  the  city  of  Davenport,  and  its  marshal,  to  arrest  the  collection 
of  a  tax,  alleged  to  be  illegal,  levied  by  the  said  city  for  general  revenue 
purposes,  on  the  property  of  the  company  within  its  limits.  The  bill 


DAVENPORT   V.   DOWS.  281 

assigned  as  a  reason  for  its  being  filed  by  Dows,  a  stockholder  in  the 
company,  instead  of  by  the  compan}7  itself,  that  tjip.  onrnpany  neglected 
and_refused  to  take  act'™*  OQthe  subject.  A  demurrer  was  interposed 
to  the  bill,  which  was  overruled,  and  on  the  defendants  refusing  to 
answer  over,  the  Circuit  Court  ordered  that  the  collection  of  the  tax  be 
perpetually  enjoined.  From  this,  its  action,  the  defendants  appealed, 
insisting  that  the  Circuit  Court  erred  in  overruling  the  demurrer,  for 
three  reasons : 

First.  Because  the  railroad  companj"  was  not  made  a  party  to 
the  bill. 

Second.  Because  the  complainant  had  a  complete  remedy  at 
law ;  and, 

Third.  Because  the  tax  in  question  was  a  proper  charge  against 
the  property  of  the  corporation. 

Mr.  J.  N.  Rogers  for  the  appellants ;  Mr.  T.  F.  Witheroiv, 
contra. 

Mr.  Justice  DAVIS  delivered  the  opinion  of  the  court. 

It  is  unnecessary  to  notice  the  last  two  reasons  assigned,  wiry  the 
demurrer  should  not  have  been  overruled,  as  the  first  is  well  taken. 
Indeed,  it  would  be  improper  to  pass  on  the  merits  of  the  controversy 
until  the  proper  parties  to  be  affected  by  the  decision  are  before  the 
court. 

That  a  stockholder  maj"  bring  a  suit  when  a  corporation  refuses  is 
settled  in  Dodge  v.  Woolsey,1  but  such  a  suit  can  only  be  maintained 
on  the  ground  that  the  rights  of  the  corporation  are  involved.  These 
rights  the  individual  shareholder  is  allowed  to  assert  in  behalf  of  himself 
and  associates,  because  the  directors. of  the  corporation  decline  to  take 
the  proper  steps  fr  *«sprt  them.  Manifestly  the  proceedings  for  this 
purpose  should  be  so  conducted  that  any  decree  which  shall  be  made 
on  the  merits  shall  conclude  the  corporation.  Tbis_can  only  be  jfone 
by  making  the  corporation  a  part}'  defendant.  The  relief  asked  is  on 
behalf  of  the  corporation,  not  the  individual  shareholder,  and  if  it  be 
granted  the  complainant  derives  only  an  incidental  benefit  from  it.  It 
would  be  wrong,  in  case  the  shareholder  were  unsuccessful,  to  allow 
the  corporation  to  renew  the  litigation  in  another  suit,  involving  pre- 
cisely the  same  subject-matter.  To  avoid  such  a  result,  a  court  of 
equity  will  not  take  cognizance  of  a  bill  brought  to  settle  a  question  in 
which  the  corporation  is  the  essential  party  in  interest,  unless  it  is 
made  a  party  to  the  litigatioa.* 

In  this  case  the  tax  sought  to  be  avoided  was  assessed  against  the 
Chicago,  Rock  Island,  and  Pacific  Railroad  Company,  and  the  decree 
rendered  discharges  the  company  from  the  paj-ment  of  this  tax.  The 

*  18  Howard,  340. 

2  Robinson  v.  Smith,  3  Paige,  222,  233 ;  Cunningham  v.  Pell,  5  Id.  607 ;  Hersey  v. 
Veazie,  24  Maine,  1  ;  Charleston  Insurance  and  Trust  Co.  v.  Sebring,  5  Richardson, 
Equity,  342 ;  Western  Railroad  Co.  v.  Nolan,  48  New  York,  573  ;  Bagshaw  v.  Eastern 
Union  Railroad  Co.,  7  Hare,  114-131. 


282  HAWES   V.    OAKLAND. 

corporation,  therefore,  should  have  been  made  a  part}1  to  the  suit,  and 
as  it  was  not,  the  demurrer  should  have  been  sustained. 

DECREE  REVERSED,  and  the  cause  remanded  for  further  proceedings, 

In  conformity  with  this  opinion. 


HAWES  v.  OAKLAND. 

1881.     104  U.  S.  450.1 

APPEAL  from  the  Circuit  Court  of  the  United  States  for  the  District 
of  California. 

The  facts  are  stated  in  the  opinion  of  the  court. 

Mr.  Charles  JVT  Fox  for  the  appellant. 

Mr.  Henry  Vrooman  for  the  appellees. 

MR.  JUSTICE  MILLER  delivered  the  opinion  of  the  court. 

This  is  an  appeal  from  a  decree  in  chancery  dismissing  the  com- 
plainant's bill,  wherein  he,  a  citizen  of  New  York,  alleges  that  he  is  a 
stockholder  in  the  Contra  Costa  Water-works  Company,  a  California 
corporation,  and  that  he  files  it  on  behalf  of  himself  and  all  other 
stockholders  who  may  choose  to  come  in  and  contribute  to  the  costs 
and  expenses  of  the  suit. 

The  defendants  are  the  city  of  Oakland,  the  Contra  Costa  Water- 
works Company,  and  Anthony  Chabot,  Henry  Pierce,  Andrew  J.  Pope, 
Charles  Holbrook,  and  John  W.  Coleman,  trustees  and  directors  of 
the  company. 

The  foundation  of  the  complaint  is  that  the  cit}r  of  Oakland  claims 
at  the  hands  of  the  company  water,  without  compensation,  for  all 
municipal  purposes  whatever,  including  watering  the  streets,  public 
squares  and  parks,  flushing  sewers,  and  the  like,  whereas  it  is  only 
entitled  to  receive  water  free  of  charge  in  cases  of  fire  or  other  great 
necessity ;  that  the  company  comply  with  this  demand,  to  the  great 
loss  and  injury  of  the  company,  to  the  diminution  of  the  dividends 
which  should  come  to  him  and  other  stockholders,  and  to  the  decrease 
in  the  value  of  their  stock.  The  allegation  of  his  attempt  to  get  the 
directors  to  correct  this  evil  will  be  given  in  the  language  of  the  bill. 

He  says  that  "on  the  tenth  day  of  July,  1878,  he  applied  to  the 
president  and  board  of  directors  or  trustees  of  said  water  company, 
and  requested  them  to  desist  from  their  illegal  and  improper  practices 
aforesaid,  and  to  limit  the  supply  of  water  free  of  charge  to  said  city 
to  cases  of  fire  or  other  great  necessit\",  and  that  said  board  should 
take  immediate  proceedings  to  prevent  said  city  from  taking  water 

1  Portions  of  opinion  omitted.  —  ED. 


HAWES   V.   OAKLAND.  283 

from  the  works  of  said  compan}1  for  an}"  other  purpose  without  com- 
pensation ;  but  said  board  of  directors  and  trustees  have  wholly  declined 
to  take  any  proceedings  whatever  in  the  premises,  and  threaten  to  go 
on  and  furnish  water  to  the  extent  of  said  company's  means  to  said 
city  of  Oakland  free  of  charge,  for  all  municipal  purposes,  as  has  here- 
tofore' been  done,  and  in  cases  other  than  cases  of  fire  or  other  great 
necessity,  except  as  for  family  uses  hereinbefore  referred  to  ;  and  your 
orator  avers  that  by  reason  or  tue  premises  said  water  company  and  your 
orator  and  the  other  stockholders  thereof  have  suffered,  and  will,  by  a 
continuance  of  said  acts,  hereafter  suffer,  great  loss  and  damage." 

To  this  bill  the  water-works  company  and  the  directors  failed  to 
make  answer;  and  the  city  of  Oakland  filed  a  demurrer,  which  was 
sustained  by  the  court  and  the  bill  dismissed.  The  complainant  ap- 
pealed. 

Two  grounds  of  demurrer  were  set  out  and  relied  on  in  the  court 
below,  and  are  urged  upon  us  on  this  appeal.  They  are :  — 

1.  That  appellant  has  shown  no  capacit}'  in  himself  to  maintain  this 
suit,  the  injury,  if  any  exists,  being  to  the  interests  of  the  corporation, 
and  the  right  to  sue  belonging  solely  to  that  body. 

2.  That  by  a  sound  construction  of  the  law  under  which  the  company 
is  organized  the  city  of  Oakland  is  entitled  to  receive,  free  of  compen 
sation,  all  the  water  which  the  bill  charges  it  with  so  using. 

The  first  of  these  causes  of  demurrer  presents  a  matter  of  very 
great  interest,  and  of  growing  importance  in  the  courts  of  the  United 
States. 

Since  the  decision  of  this  court  in  Dodge  v.  Woolsey  (18  How.  331), 
the  principles  of  which  have  received  more  than  once  the  approval  of 
this  court,  the  frequency  with  which  the  most  ordinary  and  usual 
chancer}'  remedies  are  sought  in  the  Federal  courts  by  a  single  stock- 
holder of  a  corporation  who  possesses  the  requisite  citizenship,  in  cases 
where  the  corporation  whose  rights  are  to  be  enforced  cannot  sue  in 
those  courts,  seems  to  justify  a  consideration  of  the  grounds  on  which 
that  case  was  decided,  and  of  the  just  limitations  of  the  exercise  of 
those  principles. 

This  practice  has  grown  until  the  corporations  created  by  the  laws 
of  the  States  bring  a  large  part  of  their  controversies  with  their  neigh- 
bors and  fellow-citizens  into  the  courts  of  the  United  States  for  adjudi- 
cation, instead  of  resorting  to  the  State  courts,  which  are  their  natural, 
their  lawful,  and  their  appropriate  forum.  It  is  not  difficult  to  see  how 
this  has  come  to  pass.  A  corporation  having  such  a  coutrovers)-, 
which  it  is  foreseen  must  end  in  litigation,  and  preferring  for  any 
reason  whatever  that  this  litigation  shall  take  place  in  a  Federal  court, 
in  which  it  can  neither  sue  its  real  antagonist  nor  be  sued  by  it,  has 
recourse  to  a  holder  of  one  of  its  shares,  who  is  a  citizen  of  another 
State.  This  stockholder  is  called  into  consultation,  and  is  told  that 
his  corporation  has  rights  which  the  directors  refuse  to  enforce  or  to 
protect.  He  instantly  demands  of  them  to  do  their  duty  in  this  regard, 


•\ 


284  HAWES   V.   OAKLAND. 

which  of  course  they  fail  or  refuse  to  do,  and  thereupon  he  discovers 
that  he  has  two  causes  of  action  entitling  him  to  equitable  relief  in  a 
court  of  chancery ;  namely,  one  against  his  own  company,  of  which  he 
is  a  corporator,  for  refusing  to  do  what  he  has  requested  them  to  do ; 
and  the  other  against  the  party  which  contests  the  matter  in  contro- 
versy with  that  corporation.  These  two  causes  of  action  he  combines 
in  an  equity  suit  in  the  Circuit  Court  of  the  United  States,  because  he 
is  a  citizen  of  a  different  State,  though  the  real  parties  to  the  contro- 
versy could  have  no  standing  in  that  court.  If  jio  non-resident  stock- 
JioldfT  exists,  a  transfer  of  a  few  shares  is  made  to  some  citizen  of 
another  Jitate,  whothen  brings  tEe^suit.  The  real  defendant  in  this 
action  ma}"  be  quite  as  willing  to  have  the  case  tried  in  the  Federal 
court  as  the  corporation  and  its  stockholder.  If  so,  he  makes  no 
objection,  and  the  case  proceeds  to  a  hearing.  Or  he  may  tile  his 
answer  denying  the  special  grounds  set  up  in  the  bill  as  a  reason  for 
the  stockholder's  interference,  at  the  same  time  that  he  answers  to  the 
merits.  In  either  event  the  whole  case  is  prepared  for  hearing  on  the 
merits,  the  right  of  the  stockholder  to  a  standing  in  equity  receives 
but  little  attention,  and  the  overburdened  courts  of  the  United  States 
have  this  additional  important  litigation  imposed  upon  them  by  a  simu- 
lated and  conventional  arrangement,  unauthorized  by  the  facts  of  the 
case  or  03-  the  sound  principles  of  equity  jurisdiction. 

That  the  vast  and  increasing  proportion  of  the  active  business  of 
modern  life  which  is  done  by  corporations  should  call  into  exercise  the 
beneficent  powers  and  flexible  methods  of  courts  of  equity,  is  neither 
to  be  wondei'ed  at  nor  regretted ;  and  this  is  especially  true  of  con- 
troversies growing  out  of  the  relations  between  the  stockholder  and 
the  corporation  of  which  he  is  a  member.  The  exercise  of  this  power 
in  protecting  the  stockholder  against  the  frauds  of  the  governing  body 
of  directors  or  trustees,  and  in  preventing  their  exercise,  in  the  name 
of  the  corporation,  of  powers  which  are  outside  of  their  charters  or 
articles  of  association,  has  been  frequent,  and  is  most  beneficial,  and 
is  undisputed.  These  are  real  contests,  however,  between  the  stock- 
holder and  the  corporation  of  which  he  is  a  member. 

The  case  before  us  goes  beyond  this. 

This  corporation,  like  others,  is  created  a  body  politic  and  corporate, 
that  it  ma}'  in  its  corporate  name  transact  all  the  business  which  its 
charter  or  other  organic  act  authorizes  it  to  do. 

Such  corporations  may  be  common  carriers,  bankers,  insurers,  mer- 
chants, and  may  make  contracts,  commit  torts,  and  incur  liabilities, 
and  may  sue  or  be  sued  in  their  corporate  name  in  regard  to  all  of 
these  transactions.  The  parties  who  deal  with  them  understand  this, 
and  that  they  are  dealing  with  a  body  which  has  these  rights  and  is 
subject  to  these  obligations,  and  they  do  not  deal  with  or  count  upon 
a  liability  to  the  stockholder  whom  they  do  not  know  and  with  whom 
they  have  no  privity  of  contract  or  other  relation. 

The  principle  involved  in  the  case  of  Dodge  v.  Woolsey  permits  the 


HAWES   V.    OAKLAND.  285 

stockholder  in  one  of  these  corporations  to  step  in  between  that  cor- 
poration and  the  part}'  with  whom  it  has  been  dealing  and  institute  and 
control  a  suit  in  which  the  rights  involved  are  those  of  the  corporation, 
and  the  controversy  is  one  really  between  that  corporation  and  the 
other  party,  each  being  entirely  capable  of  asserting  its  own  rights. 

This  is  a  very  different  affair  from  a  controversy  between  the  share- 
holder of  a  corporation  and  that  corporation  itself,  or  its  managing 
directors  or  trustees,  or  the  other  shareholders,  who  may  be  violating 
his  rights  or  destroying  the  property  in  which  he  has  an  interest.  Into  _ 
such  a  contest  the  outsider,  dealing  with  the  corporation  through  its 
managing  agents  in  a  matter  within  their  authority,  cannot  be  dragged, 
except  where  it  is  necessary  to  prevent  an  absolute  failure  of  justice 
in  cases  which  have  been  recognized  as  exceptional  in  their  character 
and  calling  for  the  extraordinary  powers  of  a  court  of  equity.  It  is, 
therefore,  always  a  question  of  equitable  jurisprudence,  and  as  such  has, 
within  the  last  forty  years,  received  the  repeated  consideration  of  the 
highest  courts  of  England  and  of  this  country. 

[The  learned  judge  here  cited,  and  commented  on,  various  cases ; 
especially  Foss  v.  Harbottle,  2  Hare,  461 ;  Gray  v.  Lewis,  L.  R.  8 
Chan.  Ap.  1035  ;  MacDouycdl  v.  Gardiner,  L.  R.  1  Chan.  Div.  13  ; 
and  Dodge  v.  Woolsey,  18  Howard,  331.  The  opinion  then  proceeds 
as  follows :] 

This  examination  of  Dodge  v.  Woolsey  satisfies  us  that  it  does  not 
establish,  nor  was  it  intended  to  establish,  a  doctrine  on  this  subject 
different  in  any  material  respect  from  that  found  in  the  cases  in  the 
English  and  in  other  American  courts,  and  that  the  recent  legislation 
of  Congress  referred  to  leaves  no  reason  for  any  expansion  of  the  rule 
in  that  case  beyond  its  fair  interpretation. 

We  understand  that  doctrine  to  be  thfltj  tft  ?Uftfr]?  a  «V>ckho1der  in 
a  corporation  to  sustain  in  a  court  of  equity  in  his  ovui  name,  a  suit 
founded  on  a  right  of  action  existing  in  the  corporation  itself,  and  in 
which  the  corporation  itself  is  the  appropriate  plaintiff',  there  must  exist 
as  the  fouhcTatKvn  "T  f.hfi  sink. — 

Some  action  or  threatened  action  of  the  managing  board  of  directors 
or  trustees  of  the  corporation  which  is  beyond  the  authority  conferred 
on  them  by  their  charter  or  other  source  of  organization  ;  ^\« 

Or  jsuch  a  fraudulent  transaction  completed  or  contemplated  by  the 
acting  managers,  in  connection  with  some  other  party,  or  among  them- 
selves, or  with  other  shareholders  as  will  result  in  serious  injury  to  the 
corporation,  or  to  the  interests  of  the  other  shareholders  ; 

Or  where  the  board  of  directors,  or  a  majority  of  them,  are  acting 
for  their  own  interest,  in  a  manner  destructive  of  the  corporation  itself, 
or  of  the  rights  of  the  other  shareholders  ; 

Or  where  the  majority  of  shareholders  themselves  are  oppressively 
and  illegally  pursuing  a  course  in  the  name  of  the  corporation,  which 
is  in  violation  of  the  rights  of  the  other  shareholders,  and  which  can 
only  be  restrained  by  the  aid  of  a  court  of  equity. 


*    >/>\A_A^v~rVv£n 


286  HAWES   V.   OAKLAND. 

Possibly  other  cases  ma}*  arise  in  which,  to  prevent  irremediable 
injury,  or  a  total  failure  of  justice,  the  court  would  be  justified  in 
exercising  its  powers,  but  the  foregoing  may  be  regarded  as  an  outline 
of  the  principles  which  govern  this  class  of  cases. 

But,  in  addition  to  the  existence  of  grievances  which  call  for  this 
kind  of  relief,  it  is  equally  important  that  before  the  shareholder  is 
permitted  in  his  own  name  to  institute  and  conduct  a  litigation  which 
usually  belongs  to  the  corporation,  he  should  show  to  the  satisfaction 
of  the  court  that  he  has  exhausted  all  the  means  within  his  reach  to 
obtain,  within  the  corporation  itself^  the  redress  of  his  grievances,  or 
l^tiorTTn  conformit}  to  his  wishesT  He  must  make  an  earnest,  not  a^ 
simulated  effort/wlta  jjiejuanagihg  bodj^of  the  corporation,  to  induce 
remedial  actionTon  their~part,  and  this  musJL _be  made  apparent  to  the 
court.  If  time  permits  or  has  permitted,  he  must  show,  if  he  fails 
with  the  directors,  that  he  has  made  an  honest  effort  to  obtain  action 
by  the  stockholders  as  a  bod}',  in  the  matter  of  which  he  complains. 
And  he  must  show  a  case,  it  this  is  not  done,  where  it  could  not  be 
done,  or  it  was  not  reasonable  to  require  it. 

The  efforts  to  induce  such  action  as  complainant  desires  on  the  part 
of  the  directors,  and  of  the  shareholders  when  that  is  necessary,  and 
the  cause  of  failure  in  these  efforts  should  be  stated  with  particularity, 
and  an  allegation  that  complainant  was  a  shareholder  at  the  time  of  the 
transactions  of  which  he  complains,  or  that  bis  shares  have  devolved 
on  him  since  by  operation  of  law,  and  that  the  suit  is  not  a  collusive 
one  to  confer  on  a  court  of  the  United  States  jurisdiction  in  a  case  of 
which  it  could  otherwise  have  no  cognizance,  should  be  in  the  bill, 
which  should  be  verified  by  affidavit. 

It  is  needless  to  say  that  appellant's  bill  presents  no  such  case  as  we 
have  here  supposed  to  be  necessary  to  the  jurisdiction  of  the  court. 

He  merely  avers  that  he  requested  the  president  and  directors  to 
desist  from  furnishing  water  free  of  expense  to  the  city,  except  in  case 
of  fire  or  other  great  necessity,  and  that  they  declined  to  do  as  he 
requested.  No  correspondence  on  the  subject  is  given.  No  reason 
for  declining.  We  have  here  no  allegation  of  a  meeting  of  the  direc- 
tors, in  which  the  matter  was  formally  laid  before  them  for  action.  No 
attempt  to  consult  the  other  shareholders  to  ascertain  their  opinions,  or 
obtain  their  action.  But  within  five  days  after  his  application  to  the 
directors  this  bill  is  filed.  There  is  no  allegation  of  fraud  or  of  acts 
ultra  vires,  or  of  destruction  of  property,  or  of  irremediable  injury  of 
any  kind. 

Conceding  appellant's  construction  of  the  company's  charter  to  be 
correct,  there  is  nothing  which  forbids  the  corporation  from  dealing 
with  the  city  in  the  manner  it  has  done.  That  city  conferred  on  the 
company  valuable  rights  by  special  ordinance ;  namely,  the  use  of  the 
streets  for  laying  its  pipes,  and  the  privilege  of  furnishing  water  to 
the  whole  population.  It  may  be  the  exercise  of  the  highest  wisdom 
to  let  the  city  use  the  water  in  the  manner  complained  of.  The  direc- 


MENIER   V.   HOOPER'S   TELEGRAPH   WORKS.  287 

tors  are  better  able  to  act  understanding!}-  on  this  subject  than  a  stock- 
holder residing  in  New  York.  Tha^great  body  of  the  stockholders 
residing  in  Oakland  or  other  places  in  California  may  take  this  view 
of.lt,  and  be  content  to  abide  by  the  action  of  their  directors. 

If  this  be  so, "Is  a  bitter  litigation  with  the  city  to  be  conducted  by 
one  stockholder  for  the  corporation  and  all  other  stockholders,  because 
the  amount  of  his  dividends  is  diminished? 

This  question  answers  itself,  and  without  considering  the  other  point 
raised  by  the  demurrer,  we  are  of  opinion  that  it  was  property  sustained, 
and  the  bill  dismissed,  because  the  appellant  shows  no  standing  in  a 
court  of  equity  —  no  right  in  himself  to  prosecute  this  suit. 

Decree  affirmed. l 


MENIER  v.  HOOPER'S  TELEGRAPH  WORKS. 

1874.     L.  R.  9  Chan.  Ap.  350. 

THE  bill  in  this  case  was  filed  by  E.  J.  Menier,  on  behalf  of  him- 
self and  all  other  the  shareholders  of  the  European  and  South  Ameri- 
can Telegraph  Company  (except  such  of  them  as  were  Defendants), 
against  a  company  called  Hooper's  Telegraph  Works,  W.  Hooper,  If. 
W.  Crace,  and  the  European  and  South  American  Telegraph  Com- 
pany, and  stated  (amongst  other  things)  as  follows  :  —  That  the  Euro- 
pean  Company  was  incorporated  in  1871  with  the  object  of  carrying 
out  an  agreement  between  the  Plaintiff,  Menier,  and  one  Bradford, 
and  others,  for  constructing  a  submarine  telegraph  from  Europe  to 
South  America,  under  certain  conventions  and  decrees  of  foreign  gov- 
ernments. The  capital  of  the  company  was  to  be  £1,250,000,  in 
62,500  £20  shares,  and  by  the  articles  of  association  provisions  were 
made  for  holding  meetings  of  the  company,  at  which  even'  member 
was  to  have  one  vote  for  every  share  held  by  him.  That  Hooper's 
Company  were  to  make  and  lay  down  for  the  European  Company 

1  The  following  "  Additional  Rule  of  Practice  in  Equity,"  No.  94,  was  promul- 
gated by  the  U.  S.  Supreme  Court,  Jan.  23,  1882,  and  is  printed  in  vol.  104  U.  S. 
Preface,  ix. :  — 

"  Every  bill  brought  by  one  or  more  stockholders  in  a  corporation,  against  the  cor- 
poration and  other  parties,  founded  on  rights  which  may  properly  be  asserted  by  the 
corporation,  must  be  verified  by  oath,  and  must  contain  an  allegation  that  the  plaintiff 
was  a  shareholder  at  the  time  of  the  transaction  of  which  he  complains,  or  that  his 
share  had  devolved  on  him  since  by  operation  of  law ;  and  that  the  suit  is  not  a  collusive 
one  to  confer  on  a  court  of  the  United  States  jurisdiction  of  a  case  of  which  it  would 
not  otherwise  have  cognizance.  It  must  also  set  forth  with  particularity  the  efforts  of 
the  plaintiff  to  secure  such  action  as  he  desires  on  the  part  of  the  managing  directors 
or  trustees,  and,  if  necessary,  of  the  shareholders,  and  the  causes  of  his  failure  to 
obtain  such  action." 


288  MENIER  v.  HOOPER'S  TELEGRAPH  WORKS. 

telegraph  cables  from  Portugal  to  ^Brazil.  That  a  prospectus  was 
issued  and  many  shares  were  applied  for,  but  in  consequence  of  objec- 
tions raised  the  directors  determined  not  to  proceed  with  the  allotment 
to  the  public,  and  the  only  shares  allotted  were  3000  to  Hooper's  Com- 
pany, 2000  to  the  Plaintiff,  and  325  to  thirteen  persons,  ten  of  whom 
were  the  directors.  That  £3  was  paid  on  each  of  the  shares  so  allotted. 
That  one  of  the  concessions  for  making  the  telegraph  had  been  granted 
to  the  Baron  de  Maua,  who  was  at  one  time  chairman  of  the  European 
Company,  and  this  concession  was  claimed  by  the  European  Com- 
pany. That  a  bill  was  filed  in  this  Court  by  the  European  Company 
against  the  Baron  de  Maua  and  another  company,  praying  a  declara- 
tion that  the  Baron  de  Maua  was  a  trustee  of  the  concession  for  the 
European  Company,  and  that  he  might  be  restrained  from  transfer- 
ring it  to  any  one  else.  That  a  motion  was  made  for  an  interlocutory 
injunction,  and  was  refused  by  the  Vice-Chancellor  Matins,  but  on  the 
balance  of  convenience  only.  That  the  European  Company,  and  also 
Hooper's  Company,  at  first  intended  to  appeal  against  the  order  of  the 
Vice-Chancellor  Malins.  That  Hooper's  Company  afterwards  deter- 
mined not  to  appeal,andJLhen  the  directors  of  1  \\eJEuropean  Company 
determined  not  to  appeal,  but  to  take  steps  for  winding  up  the  European 
Company.  That  the  Plaintiff  was  resident  in  Paris  and  ignorant  of 
English  law,  and  believed  that  anj'  arrangements  adopted  by  the  direc- 
tors would  be  for  the  benefit  of  the  European  Company,  and  not  ex- 
clusively in  the  interests  of  Hooper's  Company.-  That  the  Plaintiff 
wished  the  appeal  to  proceed,  and  offered  to  bear  the  costs.  That  on 
the  12th  of  February,  1873,  an  extraordinary  meeting  of  the  European 
Company  was  held,  at  which  a  resolution  was  passed  that  the  company 
be  wound  up  voluntarily,  and  that  the  Defendant  Grace  be  the  liquida- 
tor. That  the  resolution  was  proposed  by  one  Kennedy,  a  director  of 
Hooper's  Company,  and  that  Grace  was  secretary  of  Hooper's  Com- 
pany. That  this  resolution  was  confirmed  at  another  extraordinary 
meeting,  at  which  five  persons  only  were  present,  of  whom  three  were 
directors  nominated  by  Hooper's  Company,  and  one  was  Grace,  the 
secretary.  That  the  Plaintiff  protested  against  these  proceedings. 
That  the  Plaintiff  was  then  ignorant,  but  had  since  discovered,  that 
these  proceedings  took  place  through  the  influence  of  Hooper's  Com- 
pany. The  bill  then  stated  the  circumstances  of  an  arrangement  be- 
tween Hooper's  Company  and  the  Telegraph  Construction  and  Main- 
tenance Company  and  the  Baron  de  Maua,  under  which  it  would  be  to 
the  advantage  of  Hooper's  Company  that  the  agreement  between  them 
[  and  the  European  Company  should  be  put  an  end  to,  in  order  to 
'  benefit  Baron  de  Maua's  Company,  and  in  order  that  Hooper's  Com- 
pany might  sell  to  another  company  the  cable  they  were  making  for 
the  European  Company.  That  these  arrangements  were  concealed 
from  the  Plaintiff  and  the  other  shareholders  in  the  European  Com- 
pany. That  Hooper's  Company  procured  the  abandonment  of  the 
suit  against  the  Baron  de  Maua,  and  the  winding-up  of  the  European 


MENIEK   V.   HOOPER'S   TELEGKAPH   WORKS.  289 

Company,  through  the  influence  which  they  had  as  holders  of  3000 
shares  in  the  .European  Company,  and  through  the  influence  of  the 
directors  nominated  by  th£m. 

And  the  bill  prayed  that  Hooper's  Company  might  be  declared  not 
entitled  to  the  benefit  of  the  profits  derived  from  the  abandonment  of 
the  suit  and  other  arrangements  aforesaid,  and  might  be  declared  a 
trustee  of  those  profits  for  the  Plaintiff  and  the  other  shareholders  in 
the  European  Company  ;  and  that  the  European  Company  and  the  De- 
fendants might  be  restrained  from  repaying  to  Hooper's  Company  an}' 
of  the  money  paid  on  the  allotment  of  shares  in  the  European  Company, 
and  from  disposing  of  the  property  of  the  European  Company. 

To  this  bill  the  Defendants  Hooper's  Company  and  W.  Hooper 
demurred  for  want  of  equity ;  and  the  Defendants  Crace  and  the  Euro- 
pean Company  also  demurred,  and  for  cause  of  demurrer  shewed 
that  the  Plaintiff  had  not  made  out  such  a  case  as  entitled  him  to  dis- 
covery or  relief. 

The  Vice-Chancellor  Bacon,  on  the  12th  of  January,  1874,  overruled 
both  demurrers  ;  and  the  Defendants  appealed. 

Mr.  Fry,  Q.  C.,  and  Mr.  Millar,  for  Hooper's  Company: —         . 

A  shareholder  has  a  right  to  vote  as  he  pleases,  and  to  suit  his  own 
interests.  If  not,  the  Court  in  every  case  might  have  to  interfere 
wherever  there  was  a  small  majorit}1,  and  consider  what  were  the  motives 
of  each  shareholder.  If  there  was  a  suit  by  the  company  against  any 
individual  shareholder,  he  would  not  be  disabled  from  voting.  He  is 
not  a  trustee  for  any  one,  and  he  may  vote  against  the  interests  of  the 
company  or  of  any  of  the  other  shareholders.  No  constructive  trust  can 
be  raised:  Gray  v.  Leicis.1  In  Atwool  v.  Merry  weather*  the  vote 
was  impeached.  If  such  a  suit  can  be  maintained,  one  shareholder 
may  file  a  bill  to  have  a  certain  contract  set  aside,  and  another  to 
have  it  carried  on.  Such  a  suit  can  only  be  maintained  by  the  com- 
pany against  the  directors.  At  all  events,  the  proceedings  ought  to  be 
in  the  liquidation,  and  not  by  bill. 

Mr.  Kay,  Q.  C.,  Mr.  Jackson,  Q.  C.,  and  Mr.  Eaeritt,  for  the  Plain- 
tiff, were  not  called  upon. 

SIR  W.  M.  JAMES,  L.  J.  :  — 

I  am  of  opinion  that  the  order  of  the  Vice-Chancellor  in  this  case  is 
quite  right. 

The  case  made  by  the  bill  is  very  shortly  this :  The  Defendants,  who 
have  a  major! t}-  of  shares  in  the  company,  have  made  an  ai'rangement 
by  which  they  have  dealt  with  matters  affecting  the  whole  company, 
the  interest  in  which  belongs  to  the  minority  as  well^as  to  the  majority. 
Thc}-  have  dealt  with  them  in  consideration  of  their  obtaining  for  them- 
selves certain  advantages.  Hooper's  Company  have  obtained  certain 
advantages  by  dealing  with  something  which  was  the  property  of  the 
whole  company.  The  minority  of  the  shareholders  say  in  effect  that 

1  Law  Rep.  8  Ch.  1035.  2  Law  Rep.  5  Eq.  464,  n. 

19 


290  MENIER  v.  HOOPER'S  TELEGRAPH  WORKS. 

the  majority  has  divided  the  assets  of  the  company,  more  or  less,  be- 
tween themselves,  to  the  exclusion  of  the  minority.  I  think  it  would 
be  a  shocking  thing  if  that  could  be  done,  because  if  so  the  majority 
rmghlrdTVide  the  whole  assets  of  the  company,  and  pass  a  resolution 
that  everything  must  be  given  to  them,  and  that  the  minority  should 
have  nothing  to  do  with  it.  Assuming  the  case  to  be  as  alleged  by  the 
bill,  then  the  majority  have  put  something  into  their  pockets  at  the  ex- 
pense of  the  minority.  If  so,  it  appears  to  me  that  the  minority  have 
a  right  to  have  their  share  of  the  benefits  ascertained  for  them  in  the 
best  way  in  which  the  Court  can  do  it,  and  given  to  them. 

It  is  said,  however,  that  this  is  not  the  right  form  of  suit,  because, 
according  to  the  principles  laid  down  in  Foss  v.  Harbottle,1  and  other 
similar  cases,  the  Court  ought  to  be  very  slow  indeed  in  allowing 
a  shareholder  to  file  a  bill,  where  the  company  is  the  proper  Plaintiff. 
This  particular  case  seems  to  me  precisely  one  of  the  exceptions  re- 
ferred to  by  Vice-Chancellor  Wood  in  Atwool  v.  Merry  weather  ?  a  case 
in  which  the  majority  were  the  Defendants,  the  wrong-doers,  who  were 
alleged  to  have  put  the  minority's  property  into  their  pockets.  In  this 
case  it  is  right  and  proper  for  a  bill  to  be  filed  by  one  shareholder  on 
behalf  of  himself  and  all  the  other  shareholders. 

Therefore  the  demurrer  ought  to  be  overruled. 

SIR  G.  HELLISH,  L.  J. :  — 

I  am  entirely  of  the  same  opinion. 

It  so  happens  that  Hooper's  Company  are  the  majority  in  this  com- 
pany, and  a  suit  by  this  company  was  pending  which  might  or  might 
not  turn  out  advantageous  to  this  company.  The  Plaintiff  says  that 
Hooper's  Company  being  the  majorit}1,  have  procured  that  suit  to  be 
settled  upon  terms  favourable  to  themselves,  they  getting  a  considera- 
tion for  settling  it  in  the  shape  of  a  profitable  bargain  for  the  laying  of 
a  cable.  I  am  of  opinion  that  although  it  may  be  quite  true  that  the 
shareholders  of  a  company  may  vote  as  they  please,  and  for  the  pur- 
pose of  their  own  interests,  yet  that  the  majorit}'  of  shareholders  cannot 
sell  the  assets  of  the  company  and  keep  the  consideration,  but  must 
allow  the  minorit}-  to  have  their  share  of  any  consideration  which  may 
come  to  them.  I  also  entirely  agree  that,  under  the  circumstances,  the 
suit  is  properly  brought  in  the  name  of  the  Plaintiff  on  behalf  of  him- 
self and  all  the  other  shareholders. 

The  appeal  will  be  dismissed  with  costs. 

Mr.  Fooks,  Q.  C.,  and  Mr.  Davey,  for  the  other  Defendants,  then 
submitted  to  have  their  appeal  dismissed. 

1  2  Hare,  461.  a  Law  Rep.  5  Eq.  464,  n. 


RUSSELL  V.   WAKEFIELD   WATERWOEKS   CO.  291 


JESSEL,  M.  R.,  IK  RUSSELL  v.  WAKEFIELD  WATER- 
WORKS  CO. 

1875.     L.  R.  20  Eq.  Cases,  474,  478-483. 

SIR  G.  JESSEL,  M.R.  A  great  deal  of  the  argument  in  this  case 
turned  upon  what  may  be  described  perhaps,  in  one  sense,  as  a  technical 
objection,  but  which  is  a  very  formidable  and  important  objection.  It 
was  said  that  this  is  a  bill  to  make  a  stranger  pay  back  mone}*  be- 
longing to  a  company  which  the  stranger  has  illegally  or  improperly 
possessed  himself  of,  or  appropriated  to  his  own  use,  and  that  any 
person  who  takes  possession  of  a  trust  fund  is  liable  to  be  sued  in 
equity  by  the  owner  of  the  trust  fund  if  he  had  notice  at  the  time  that 
it  was  a  trust  fund ;  and  although  he  gave  value,  still  in  that  way  the 
bill  can  be  maintained  against  him. 

The  answer  was,  that  where  the  owner  of  the  trust  fund  is  an 
incorporated  compan}-,  the  corporation  is  the  only  party  to  sue ;  the 
stranger  has  nothing  whatever  to  do  with  the  individual  corporators ; 
and  although  in  a  sense  it  is  their  property,  because  individual  corpo- 
rators make  up  the  corporation,  yet  in  law  it  is  not  their  property,  but 
the  property  of  the  corporation,  and  therefore  the  right  person  to  sue 
is  the  corporation,  who  is  the  cestui  que  trust  or  equitable  owner  of  the 
fund.  That  I  take  to  be  the  general  rule  of  this  Court.  In  this  Court 
the  money  of  the  companj7  is  a  trust  fund,  because  it  is  applicable  only 
to  the  special  purposes  of  the  compan}T  in  the  hands  of  the  agents  of 
the  compam*,  and  it  is  in  that  sense  a  trust  fund  applicable  by  them 
to  those  special  purposes ;  and  a  person  taking  it  from  them  with 
notice  that  it  is  being  applied  to  other  purposes  cannot  in  this  Court 
say  that  he  is  not  a  constructive  trustee. 

But  the  general  rule  being  that  the  cestui  que  trust  must  sue,  and 
not  the  individual  corporator  who  has  only  an  ultimate  beneficial 
interest,  the  only  point  remaining  to  be  considered  is,  whether  there 
are  any  exceptions  to  the  general  rule. 

% 

[After  referring  to  the  general  rule  laid  down  in  Foss  v.  Harbottle, 
2  Hare,  461.]  But  that  is  not  a  universal  rule;  that  is,  it  is  a  rule 
subject  to  exceptions,  and  the  exceptions  depend  very  much  on  the 
necessity  of  the  case ;  that  is,  the  necessitj*  for  the  Court  doing 
justice. 

It  remains  to  consider  what  are  those  exceptional  cases  in  which,  for 
the  due  attainment  of  justice,  such  a  suit  should  be  allowed.  We  are 
all  familiar  with  one  large  class  of  cases  which  are  certainly  the  first 
exception  to  the  rule.  They  are  cases  in  which  an  individual  corpo- 
rator sues  the  corporation  to  prevent  the  corporation  either  commencing 
or  continuing  the  doing  of  something  which  is  beyond  the  powers  of 


292  RUSSELL   V.   WAKEFIELD   WATERWORKS   CO. 

the  corporation.  Such  a  bill,  indeed,  may  be  maintained  by  a  single 
corporator,' hot  suing  on  behalf  of  himself  and  of  others,  as  was  settled 
in  the  House  of  Lords  in  a  case  of  Simpson  v.  Westminster  Palace 
Hotel  Company.^  If  the  subject  matter  of  the  suit  is  an  agreement 
between  the  corporation  acting  by  its  directors  or  managers  and  some 
other  corporation  or  some  other  person  strangers  to  the  corporation,  it 
is  quite  proper  and  quite  usual  to  make  that  other  corporation  or  person 
a  Defendant  to  the  suit,  because  that  other  corporation  or  person  has 
an  interest,  and  a  great  interest,  in  arguing  the  question  and  having  it 
decided,  once  for  all,  whether  the  agreement  in  question  is  really  within 
the  powers  or  without  the  powers  of  the  corporation  of  which  the  cor- 
porator is  a  member.  So  that  in  these  cases  you  must  always  bring 
before  the  Court  the  other  corporation. 

The  cases  are  so  numerous  on  this  subject,  that  one  ought  not 
perhaps  to  refer  to  them.  But  I  may  mention  a  few  of  them.  There 
is,  first,  the  well-known  case  of  Hare  v.  London  and  North- Western 
Railway  Company  ;  2  there  is  the  case  of  /Simpson  v.  Denison  ; 3  there 
is  a  case  of  Beman  v.  Rufford ; 4  and  a  vast  number  of  cases  as  regards 
agreements  between  Railway  companies  which  have  been  held  to  be 
ultra  vires.  "When  .you  have  got  the  second  corporation  or  person  a 
party  to  the  suit,  it  may  happen  that,  in  addition  to  the  relief  that  you 
are  entitled  to  as  regards  the  first,  you  are  entitled  to  have  relief  against 
the  second  for  something  that  has  been  done  under  the  tilfr"  /•/>•.>>> 
agreement.  You  may  be  entitled  to  have  money  paid  back  which  has 
been  paid  under  the  ultra  vires  agreement,  as  in  the  case  of  Salomons 
v.  Laingf  and  you  may  be  entitled  to  have  property  returned  or  other 
acts  done.  If  the  detainer  or  holder  of  the  money  or  property,  that  is, 
the  second  corporation  or  other  person,  is  already  a  party,  and  a  neces- 
sary part}',  to  the  suit,  it  would  be  indeed  a  lame  and  halting  conclusion 
if  the  Court  were  to  say  it  could  do  justice  in  a  suit  so  framed  by 
ordering  the  money  to  be  returned  or  the  property  restored.  It  is  a 
necessary  incident  to  the  first  part  of  the  relief  which  can  be  obtained 
by  individual  corporators,  and  will  do  complete  justice  on  each  side, 
and  that  has  always  been  the  practice  of  the  Court.  Therefore,  in  a 
'case  so  framed  there  is  no  objection  to  a  suit  by  an  individual  corpo- 
rator to  recover  from  another  corporator,  or  from  an}*  other  persons 
being  strangers  to  this  corporation,  the  money  or  property  so  improperly 
obtained.  But  that  is  not  the  only  case.  Any  other  case  in.  which  the 
claims  of  justice  require  it  is  within  the  exception. 

Another  instance  occurred  in  the  case  of  Atwool  v.  Merry  weather  f 
in  which  the  corporation  was  controlled  by  the  evil-doer,  and  would 
not  allow  its  name  to  be  used  as  Plaintiff  in  the  suit.  It  was  said  that 
justice  required  that  the  majority  of  the  corporators  should  not  appro- 
priate to  themselves  the  property  of  the  minority,  and  then  use  their 

i  8  H.  L.  C.  712.  2  2  J.  &  H.  80. 

8  10  Hare,  51.  *  1  Sim.  (N.S.)  550. 

6  12  Beav.  377.  8  Law  Rep.  5  Eq.  464,  n. 


BURT  V.   BRITISH,   ETC.   ASSOCIATION.  293 

own  votes  at  the  general  meeting  of  the  corporation  to  prevent  their 
being  sued  by  the  corporation,  and  consequently  in  a  case  of  that  kind 
the  corporators  who  form  part  of  the  minority  might  file  a  bill  on  their 
own  behalf  to  get  back  the  property  or  money  so  illegally  appropriated. 
It  is  not  necessary  that  the  corporation  should  absolutely  refuse  by  vote 
at  the  general  meeting,  if  it  r?n  **•  a>ffi |ffl  either  that  the  wroug-doer 
had  command  of  the  majority  of  the  votes,  so  that  it  would  be  absurd 
to  call  tne  meeting ;  or  if  it  can  be  shewn  that  there  has  been  a  general 
raeettng"sTirJsfantially  approving  of  what  has  been  done  ;  or  if  it  can  be 
shewn  from  the  acts  of  the  corporation  as  a  corporation,  distinguished 
from  the  mere  acts  of  the  directors  of  it,  that  they  have  approved  of 
what  has  been  done,  and  have  allowed  a  long  time  to  elapse  without 
interfering,  so  that  they  do  not  intend  and  are  not  willing  to  sue.  In 
all  those  cases  the  same  doctrine  applies,  and  the  individual  corporator 
may  maintain  the  suit.  As  I  have  said  before,  the  rule  is  a  general 
one,  but  it  does  not  apply  to  a  case  where  the  interests  of  justice 
require  the  rule  to  be  dispensed  with.  I  do  not  intend  b}*  the  observa- 
tions I  have  made  in  any  way  to  restrain  the  generality  of  the  terms 
made  use  of  by  the  learned  judge  who  decided  the  case  of  Foss  v. 
Harbottle.1 


BURT  v.  BRITISH,  &c.  ASSOCIATION. 

1859.     4  De  Gex  fr  Jones,  158.2 

APPEAL  by  plaintiff  from  the  dismissal  of  his  bill  by  Vice-Chancellor 
STUART. 

Plaintiff  sued  on  behalf  of  himself  and  all  other  shareholders,  except 
those  made  defendants.  The  bill  sought  to  set  aside  various  trans- 
actions of  certain  persons  with  the  association. 

Greene  and  JJromehead,  for  appellant. 

Malins,  Thring,  W.  W.  Cooper,  JSacon,  and  H.  R.  Bagshawe,  for 
various  defendants. 

KNIGHT  BRUCE,  L.  J.  [The  learned  Judge  found,  upon  evidence, 
that  the  plaintiff,  who  had  been  a  director  of  the  association,  having 
had  knowledge  of  the  transactions  now  complained  of,  had  so  con- 
ducted himself  that  he  must  be  regarded  as  having  acquiesced  in  and 
confirmed  these  transactions.  The  opinion  then  proceeds  as  follows :] 

I  am  of  opinion,  however,  looking  only  at  what  took  place  in 
December,  1856,  that  by  the  conduct  of  the  Plaintiff  at  that  time,  and 

1  2  Hare,  461. 

2  Statement  abridged.    Only  so  much  of  opinion  is  given  as  relates  to  one  point. 
—  ED. 


294  WILLOUGHBY   V.    CHICAGO   JUNCTION,   ETC.   CO. 

his  conduct  afterwards,  he  has  precluded  himself  from  any  right  of 
complaint,  whatever  right  of  complaint  others  may  have,  either  as 
against  the  Defendants  or  as  against  the  Plaintiff  himself. 

As  to  that  it  is  not  necessary  to  give  an  opinion.  He  has  sued  on 
behalf  of  himself  and  others,  and  notwithstanding  what  has  been  con- 
tended on  the  part  of  the  Defendants,  I  assume  that  there  still  exist 
persons  who  have  a  right  to  complain  of  these  transactions.  But  that 
will  not  give  the  Plaintiff  a  title  to  sue  for  them.  As  on  one  hand  a 
Plaintiff,  who  has  a  right  to  complain  of  an  act  done  to  a  numerous 
society  of  which  lie  is  a  member,  is  entitled  effectually  to  sue  on  behalf 
of  himself  and  all  others  similarly  interested  though  no  other  may 
wish  to  sue,  so,  although  there  are  a  hundred  who  wish  to  institute  a 
suit  and  arc  entitled  to  sue,  still  if  they  sue  by  a  Plaintiff  only,  who  has 
personally  precluded  himself  from  suing,  .that  suit  cannot  proceed.  The 
present  case  in  my  opinion  stands  upon  the  same  footing  as  if  the  dis- 
satisfied shareholders  (supposing  them  to  be  dissatisfied)  had  sued  by 
a  Plaintiff  who  had  released  the  Defendants.  For  that  in  my  opinion 
is  the  position  in  which  effectually  Mr.  Burt  has  placed  himself. 

Whether,  therefore,  agreeing  or  disagreeing  with  the  particular 
ground  on  which  his  Honor  the  Vice- Chancellor  has  proceeded,  I 
apprehend  that  the  grounds  which  I  have  stated  are  amply  sufficient 
to  render  a  dismissal  of  the  bill  necessary. 

•  •  •  ••••• 

TURNER,  L.  J.,  concurred. 


WILLOUGHBY  v.   CHICAGO  JUNCTION,    &c.   CO. 

1892.     50  New  Jersey  Equity  (5  Dickinson),  656.1 

ON  rule  to  show  cause  why  an  injunction  should  not  issue.  Heard 
on  bill,  supplemental  bill,  answers  and  affidavits,  and  on  subsequent 
stipulation  that  the  cause  should  be  disposed  of  as  having  been  heard 
on  final  hearing. 

The  original  bill  was  filed  Dec.  17,  1891,  by  Willoughby,  on  behalf 
of  himself,  as  a  stockholder  in  the  Chicago  Junction  &c.  corporation 
(called  by  the  court  the  New  Jersey  Co.),  and  all  other  stockholders 
therein,  who  should  come  in  and  contribute  to  the  expense  of  the  suit. 
Three  other  stockholders  were  afterwards,  by  an  order  of  court,  ad- 
mitted as  parties  complainant.  The  aforesaid  corporation  and  certain 
other  parties  were  made  defendants.  The  object  of  the  original  bill 
was  to  restrain  defendants  from  cany  ing  into  execution  an  agreement 
between  the  New  Jersey  Co.  and  certain  other  defendants,  dated  July 

1  Statement  abridged.     Portions  of  opinion  omitted.  — ED. 


WILLOUGHBY   V.    CHICAGO   JUNCTION,   ETC.  CO.  295 

27,  1891.  Before  a  hearing  on  this  bill,  another  agreement  was  entered 
into  between  the  New  Jersey  Co.  and  the  same  parties,  dated  Jan.  15, 
1892,  which,  while  it  contained  many  of  the  provisions  of  the  former 
agreement,  yet  by  its  fourteenth  paragraph  expressly  annulled  such 
former  agreement.  Thereupon  Willoughb}'  and  his  three  co-plaintiffs, 
by  leave  of  the  court,  filed  a  supplemental  bill  against  the  same  defend- 
ants, setting  out  the  fact  of  the  original  suit,  and,  as  far  as  proper, 
incorporating  the  original  bill,  and  seeking  to  restrain  the  carrying 
into  effect  both  the  agreement  of  Jan.  15,  1892,  and  that  of  July 
27,  1891. 

Ellerman,  another  stockholder  of  the  New  Jersey  Co.,  on  Aug.  19, 
1891,  filed  a  bill  in  this  court,  on  behalf  of  himself,  and  of  all  other 
stockholders  who  should  come  in  and  contribute  to  the  expense  of  the 
suit,  for  the  purpose  of  preventing  the  consummation  of  the  same 
agreement  of  July  27,  1891.  Ellerman's  suit  was  heard  before  a  vice- 
chancellor  on  bill  and  answers ;  an  opinion  was  filed  Dec.  18,  1891 
(49  N.  J.  Eq.  217),  holding  that  said  agreement  was  not  ultra  vires 
the  corporation  and  not  illegal ;  and  a  decree  was  entered  dismissing 
the  bill  on  that  ground. 

Aaron  P.  White/lead,  Frederic  W.  Stevens,  and  Thos.  N.  McCarter, 
for  plaintiffs. 

R.  Wayne  Parker,  Cortlandt  Parker,  Joseph  H.  Choate,  Wm.  D. 
Guthrie,  and  Barker  Gummere,  for  various  defendants. 

GREEN,  V.  C.  [After  stating  the  case.]  Assuming  that  such  decree 
is  not  impeachable  for  fraud,  collusion  or  other  vice,  to  what  extent,  if 
at  all,  is  the  decision  of  questions  in  the  Ellerman  suit  conclusive  in 
this  action? 

Mr.  Black,  in  his  work  on  Judgments,  thus  states  the  general 
rule  (§  504): 

"A  point  which  was  actually  and  directly  in  issue  in  a  former  suit, 
and  was  there  judicially  passed  upon  and  determined  by  a  domestic 
court  of  competent  jurisdiction,  cannot  be  again  drawn  in  question  in 
any  future  action  between  the  same  parties  or  their  privies,  whether 
the  causes  of  action  in  the  two  suits  be  identical  or  different." 

As  the  rule  in  question  is  general!}7  stated,  the  former  judgment  is 
binding  only  on  parties  and  their  privies,  but  the  course  of  decision 
has  been  such  as  to  embrace  others  who  do  not  stand  in  a  relation, 
strictly  speaking,  of  privity  with  the  original  party,  as  a  sheriff  and  his 
deputy,  King  v.  Chase,  15  N.  H.  9  (41  Am.  Dec.  657)  ;  master  and 
servant,  in  an  action  of  trespass,  Emery  v.  Fowler,  39  Me.  326  (63 
Am.  Dec.  627) ;  the  joint  and  several  makers  of  a  promissory  note, 
Spencer  v.  Dearth,  43  Vt.  98  ;  the  true  owner,  and  the  bailee  of  com- 
plainant, Bates  v.  Stanton,  1  Duer.  79  ;  a  chattel  mortgagee  and  the 
vendee  of  the  mortgaged  goods,  Atkinson  v.  White,  60  Me.  396  ;  a 
town  and  parties  alleged  to  have  caused  an  obstruction  to  the  highway, 
in  an  action  for  negligence,  Hill  v.  Bain,  Town  Treas.,  15  R.  I.  75 


296  WILLOUGHBY  V.    CHICAGO   JUNCTION,   ETC.   CO. 

(23  Am.  Rep.  44)  ;  see,  also,  Durham  v.  Giles,  52  Me.  206 ;  Freer  v. 
Stotenbur,  2  Abb.  Ct.  of  App.  Dec.  189. 

Chief  Justice  Durfee,  in  Hill  v.  JSain,  referring  to  some  of  the  cases, 
says  (at  p.  77)  : 

"  In  these  cases  the  defendants  were  permitted  to  avail  themselves, 
by  way  of  estoppel,  of  judgments  to  which  they  were  neither  parties 
nor  privies.  The  ground  on  which  this  was  permitted  seems  to  have 
been  that  the  defendants,  though  not  parties  to  the  judgments,  were  so 
connected  in  interest  or  liability  with  the  parties  that  the  judgments, 
when  recovered,  could  be  regarded  as  virtually  recovered  for  them,  for 
the  purposes  of  estoppel,  as  well  as  by  and  for  the  parties  of  record." 

_Black  on  Judgments  (§  537)  thus  states  the  rule  as  to  the  parties 
affected : 

"It  is  not  always  necessary  that  the  parties  to  the  two  suits  should 
be  nominal!}'  the  same  in  order  that  one  recovery  may  bar  another. 
It  is  in  general  sufficient  if  they  are  really  and  substantially  in  interest 
the  same." 

And  Mr.  Freeman,  in  his  work  on  Judgments,  thus  (§  154)  : 

u  Persons  who  were  parties  to  the  suit,  or  in  privity  with  such  part}", 
or  in  such  a  position  that  they  were  the  real  parties  in  interest  in  the 
litigation  conducted  for  their  benefit  in  the  name  of  another,  under 
such  circumstances  as  to  make  them  answerable  for  the  result  of  the 
litigation  by  virtue  of  the  principles  to  be  hereinafter  stated." 

The  practice  has  long  been  recognized  of  permitting  suit  to  be 
brought  by  a  few  as  the  representatives  of  a  numerous  class,  on  behalf 
of  themselves  and  all  others  of  the  class,  when  there  is  a  common 
interest  or  a  common  right  which  the  suit  seeks  to  protect,  and  against 
a  few  as  representing  a  numerous  class  subject  to  a  common  liability 
•which  the  suit  seeks  to  enforce.  Story  Eq.  PL  §  97. 

"  In  most,  if  not  in  all,  cases  of  this  sort,  the  decree  obtained  upon 
such  a  bill  will  ordinarily  be  held  binding  upon  all  other  persons  stand- 
ing in  the  same  predicament,  the  court  taking  care  that  sufficient  per- 
sons are  before  it,  honestly,  fairly  and  fully  to  ascertain  and  try  the 
general  right  in  contest."  Story  Eq.  PL  §  120. 

[The  learned  Judge  then  stated  the  cases  of  Harmon  \.  Auditor, 
123  111.  122;  Gaskett  v.  Dudley,  6  Metcalf,  546;  and  Davey  v.  St. 
Allans  Trust  Co.,  60  Vt.  1.] 

None  of  these  cases,  it  is  true,  is  exactly  in  point,  but  they  show 
clearly  how  elastic  is  the  rule  limiting  the  conclusive  character  of 
judgments  to  parties  and  their  privies.  How  does  the  question  stand 
on  principle? 

Actions  of  the  class  to  which  the  Ellerman  and  Willoughby  suits 
belong  are  sui  generis,  in  this,  that  the  complainant  does  not  prosecute 
in  his  own  right  —  a  stockholder,  as  such,  does  not  have  a  legal  or 
equitable  estate  in  the  corporate  property ;  his  only  right  of  property 
is  to  a  proportionate  share  of  the  profits  of  the  business  while  the  corn- 
pan}1  is  in  operation,  and  to  a  proportionate  share  of  the  net  assets  on 


WILLOUGHBY  V.    CHICAGO   JUNCTION,   ETC.   CO.  297 

its   dissolution.      Unauthorized   dealing_with  foe  franchises  nr  funds  pf 

the  corporation  directlyinjure  it  as  a  legal  entity;  it  is  the  franchises 
ofThlTcorporation  which  are  to  be  misused,  the  funds  of  the  corporation 
wbrctraTeTo  be  misappropriated,  and  the  corporation  is,  therefore,  the 
party  toT5e"injured  and  should  itself  seek  redress.  This  class  of  cases 
must  not  be_cojifnnnflfMl  with  <ho  preventive  remedy  of  every  stockholder 
to  restrain  autejiltra  vires  the  corporation.  While  "  the  directors  are 
quasi  or  sub-modo  trustees  for  the  corporation  with  respect  to  the 
corporate  property,  they  are  also  quasi  or  sub-modo  trustees  for  the 
stockholders  with  respect  to  their  shares  of  the  stock."  3  Pom.  Eq. 
Jur.  §  1090. 

Each  stockholder  has  invested  his  money  in  the  very  enterprise 
contemplated  by  the  charter,  and  has,  in  his  own  right,  an  equitable 
remedy  to  prevent  his  quasi- trustees,  as  directors,  from  misuse  of  the 
corporate  franchises,  and  from  diversion  of  corporate  funds,  to  a  pur- 
pose  foreign  to  that  of  the  charter,  and  for  which  he  has  invested  his 
money,  and  this  although  ever}*  other  stockholder  favors  the  proposed 
action,  and  it  is  plainly  advantageous  to  the  financial  interests  of  the 
company. 

The  Ellerman  and  Willoughby  suits  belong  not  to  this,  but  to  that 
class  of  cases  in  which  the  corporation  itself  is  directly  injured  and  is  ' 
primarily  interested,  and  should  itself  institute  and  maintain  an  action 
for  relief;  in  which  the  remedy  to  be  obtained,  whether  pecuniary  or 
otherwise,  is  for  its  benefit  and  belongs  to  it  alone  ;  the  stockholder  in 
such  case  has  no  standing  in  the  court,  as  a  partypeScefiiL nn  fhp 
refusal,  either  express  or  implied,  of  the  corporation  itself  to  prosecute. 

Where,  as  in  this  case,  an  appeal  to  the  directors  to  bring  suit  would 
apparently  be  unavailing,  refusal  to  prosecute  is  implied,  and  a  stock- 
holder is  permitted  to  commence  the  action  in  his  own  name ;  but 
otherwise  the  suit  is  treated  in  every  respect  as  one  brought  by  and  for 
the  corporation  ;  although  the  stockholder  is  the  nominal,  the  corpora- 
tion is  the  real  part}'  complainant,  represented  not  by  itsliccustomed 
officials,  but  by  one  or  more  of  its  stockholders. 

Professor  Pomeroy  (3  Eq.  Jur.  §  1095)  says,  with  reference  to  such 
a  suit : 

"  Wherever  a  cause  of  action  exists  primarily  in  behalf  of  the  cor- 
poration against  directors,  officers  and  others,  for  wrongful  dealing 
with  corporate  property,  or  wrongful  exercise  of  corporate  franchises, 
so^that  the  remedy  should  regularly  be  obtained  through  a  suit  by  and 
in  the  name  of  the  corporation,  and  the  corporation  either  actually  or 
virtually  n  fuses  to  institute  or  prosecute  such  a  suit,  then,  in  order  to 
prevent  a  failure  of  justice,  an  action  may  be  brought  and  maintained 
by  a  stockholder  or  stockholders,  either  individually  or  suing  on  behalf 
of  themselves  and  all  others  similarly  situated,  against  the  wrong-doing 
directors,  officers  and  other  persons  ;  but  it  is  absolutely  indispensable 
that  the  corporation  itself  should  be  joined  as  a  party  —  usually  as  a 
co-defendant.  The  rationale  of  this  rule  should  not  be  misapprehended. 


298  WILLOUGHBY   V.   CHICAGO   JUNCTION,   ETC.   CO. 

The  stockholder  does  not  bring  such  a  suit  because  his  rights  have 
been  directly  violated,  or  because  the  cause  of  action  is  his,  or  because 
he  is  entitled  to  the  relief  sought ;  he  is  permitted  to  sue  in  this  manner 
simply  in  order  to  set  in  motion  the  judicial  machinery  of  the  court. 
"The  stockholder,  either  individually  or  as  a  representative  of  the  class, 
may  commence  the  suit,  and  may  prosecute  it  to  judgment ;  but  in 
every  other  respect  the  action  is  the  ordinary  one  brought  by  the 
corporation  ;  it  is  maintained  directly  for  the  benefit  of  the  corporation, 
and  the  final  relief,  when  obtained,  belongs  to  the  corporation  and  not 
to  the  stockholder-plaintiff.  The  corporation  is,  therefore,  an  indis- 
pensably necessary  part}',  not  simply  on  the  general  principles  of  equity 
pleading,  in  order  that  it  may  be  bound  by  the  decree,  but  in  order 

that  the  relief,  when  granted,  may  be  awarded  to  it,  as  a  party  to  the 

record,  by  the  decree.  This  view  completely  answers  the  objections 
which  are  sometimes  raised  in  suits  of  this  class,  that  the  plaintiff  has 
no  interest  in  the  subject-matter  of  the  controversy,  nor  in  the  relief. 
In  fact,  the  plaintiff  has  no  such  direct  interest ;  the  defendant  cor- 
poration alone  has  any  direct  interest ;  the  plaintiff  is  permitted,  not- 
withstanding his  want  of  interest,  to  maintain  the  action  solely  to 
prevent  an  otherwise  complete  failure  of  justice." 
Cook  on  Stockholders  (1st  eel.)  §  692,  sa}-s : 

"The  rule  that  the  corporation  itself  is  an  indispensable  party  de- 
fendant to  such  suit,  is  due  to  the  fact  that  all  other  possible  future 
suits  by  the  corporation  are  thereb}7  prevented,  the  rights  of  the  cor- 
poration are  duly  ascertained,  and  the  remedy  made  effectual  against 
the  corporation  as  well  as  others." 

Neither  this  suit  nor  the  Ellerman  suit  was  in  the  right  of  the 
respective  complainants ;  they  were  the  nominal,  but  not  the  real, 
parties  complainant.  They  were  suing  merely  as  representing  the 
compan}',  to  establish  and  enforce  its  rights ;  the  relief  to  be  obtained 
was  not  and  is  not  for  their  individual  benefit,  but  for  the  benefit  of 
the  corporation  as  such.  In  these  cases  the  corporation  itself  is  a 
necessary  and  was  and  is  actually  a  party  defendant ;  in  these  it  was 
and  is  represented  by  counsel,  answered  the  bills  and  has  taken  part 
by  counsel,  in  the  discussion  of  the  case.  The  decree  in  the  Ellerman 

y  suit  certainly  binds  the  company.  In  the  face  of  that  decree,  neither 
the  old  nor  a  new  board  of  directors  could  attack  it  except  by  an  appeal. 
The  former  decree  could  be  successfully  pleaded  as  a  bar  to  an  action 
instituted  in  the  name  of  the  company  by  authorized  agents  who  might 
desire  to  relitigate  the  questions  decided.  If  the  compan}-  and  its 
authorized  representatives  are  then  concluded  by  such  a  decree,  how 
can  a  stockholder,  suing  in  behalf  of  the  company,  be  permitted  to 
relitigate  questions  which  are  conclusive  upon  the  corporation  ?  A_ 
stockholder  has  no  standing  in  the  court  to  prosecute  such  an  action 
except  on  the  refusal  of  the  directors,  either  actual  or  presumptive,  to 
prosecute.  But  such  refusal  of  the  directors  to  prosecute  must  be  an 
unjustifiable  refusal.  If  their  reason  for  not  doing  so  is  a  valid  one, 


WILLOUGHBY   V.   CHICAGO   JUNCTION,   ETC.   CO.  299 

the  individual  stockholder  cannot,  from  such  refusal  derive  a  right  to 
prosecute  in  his  own  name.  It  would  not  be  unreasonable  or  unjusti- 
fiable for~ariJoini3~"oF~di rectors  to  refuse  to  prosecute,  on  the  application 
of  a  stockholder,  when  there  had  been  an  adjudication  on  the  point 
which  he  seeks  to  have  passed  upon,  which  is  conclusive  upon  the 
company.  And  if  the  stockholder  in  the  face  of  a  refusal  by  the 
directors  on  that  ground  should  persist  and  commence  the  action,  an 
answer  by  the  directors  in  his  suit,  that  they  had  refused  to  bring  the 
action  solely  on  the  ground  that  the  question  had  been  before  adjudi- 
cated, would  necessarily  be  followed  by  a  dismissal  of  his  bill.  This 
argument  goes  to  the  root  of  this  question,  and  demonstrates  that  the 
decision  of  questions  litigated  in  this  court  in  the  suit  brought  by 
Ellerman,  a  stockholder,  in  his  own  behalf  and  that  of  other  stock- 
holders, in  which  the  company  was  made  a  defendant  and  appeared, 
is  conclusive  in  another  suit  brought  by  another  stockholder  for  the  | 
purpose  of  relitigating  the  questions  which  have  been  determined.  If 
not  so  there  can  be  no  end  of  litigation,  for  the  court  is  then  open  to 
suit  by  every  stockholder,  seriatim,  presenting  the  questions  over  and 
over  for  consideration  and  decision. 

In  Daunmeyer  v.  Coleman,  11  Fed.  Rep.  97,  Sawyer,  C.  J.,  says: 
u  By  reference  to  Burke  v.  Flood,  supra,  it  will  be  seen  that  a  similar 
suit  for  these  same  grievances  was  brought  by  a  single  stockholder, 
Burke,  on  behalf  of  himself  and  all  other  stockholders  —  and  it  is  a 
notorious,  historical  fact,  of  which  the  dail}*  newspapers  have  been  full, 
that  these  are  not  the  onl}'  suits  brought  in  the  same  way  for  the  same 
grievances.  Is  each  holder  of  one  of  these  five  hundred  and  forty 
thousand  shares  of  stock  entitled  to  bring  a  suit  in  equity  on  behalf  of 
himself  and  all  other  stockholders  for  an  account  of  their  transactions? 
Or,  where  such  a  suit  has  been  brought  by  one  stockholder,  must  the 
others  come  in  and  seek  their  relief  in  that  suit?  If  each  stockholder 
is  entitled  to  bring  such  a  suit,  then  there  is  something  wrong  in  the 
law,  and  the  sooner  the  supreme  court  b}-  rule,  or  congress  by  statute, 
regulates  the  matter  the  better  it  will  be  for  the  due  administration  of 
justice." 

It  is  urged  that  no  party  should  be  concluded  without  an  opportunity 
to  be  heard ;  but  this  complaint  does  not  lie  in  the  mouth  of  Mr. 
Willoughby.  He  had  an  opportunity  to  be  heard  in  the  Ellerman 
suit.  It  was  expressly  for  the  benefit  of  all  stockholders  who  might 
come  nTand  contribute  to  its  expense.  He  could,  at  anj*  time  before 
decree.  have__b£fea-Hratre  a  party  tiTthe  Ellerman  suit,  and  have  then 
advised  the  court  of  anything  not  before  brought  to  its  attention. 

He  had  ample  time  to  so  apply  after  he  actually  knew  of  the  pendency 
of  the  suit,  and  his  solicitor  was  thoroughly  informed  of  all  proceedings 
in  the  Ellerman  case  in  time  to  have  intervened.  Counsel  admitted, 
upon  the  argument,  that  the  question  whether  they  should  intervene  in 
the  Ellerman  suit,  or  resort  to  an  independent  action,  was  considered 
and  discussed  before  bringing  the  present  suit  was  determined  upon. 


300  TOMKINSON   V.   SOUTH-EASTERN   RAILWAY  CO. 

Besides,  from  the  very  form  and  nature  of  these  suits,  each  stock- 
holder must  be  considered  as  represented,  for  if  he  is  in  sympathy 
with  the  complainant  he  may  become  a  party  complainant  by  appli- 
cation to  the  court ;  if  he  is  in  sympathy  with  the  threatened  action  of 
the  company,  he  is  represented  by  and  in  the  corporation  which  is  a 
necessary  party  to  the  suit.  March  v.  Eastern  R.  It.  Co.,  40  JV.  H. 
548.  Not  only  this,  but  the  court  ma}',  if  satisfied  that  the  interests 
of  the  corporation  are  not  being  properly  presented  or  protected,  admit 
a  stockholder  to  be  made  a  part}'  defendant.  Bronson  et  al.  v.  La 
Crosse  &  M.  R.  R.  Co.,  2  Wall.  283. 

[The  learned  judge  then  held,  that  the  charge  that  the  Ellerman  suit 
was  collusive  was  not  sustained;  and  said:  " The  Ellerman  suit,  not 
being  collusive,  must  be  held  to  be  conclusive  in  this,  upon  all  questions 
which  were  therein  decided,  .  .  ."  He  then  proceeded  to  consider  the 
matters  which  arise  under  the  contract  of  Jan.  15,  1892,  not  passed  on 
in  the  former  suit,  and  which  are  the  subject  matter  of  the  supplemental 
bill.] 

Bill  and  supplemental  bill  dismissed. 

VAN  FLEET,  V.  C.,  concurred. 


TOMKINSON  v.   SOUTH-EASTERN  RAILWAY  CO. 

1887.    L.  R.  35  Chan.  Div.  675.1 

THIS  was  a  motion  by  the  Plaintiff,  a  holder  of  £500  deferred 
ordinary  stock  of  the  South-Eastern  Railway  Company,  for  an  in- 
junction to  restrain  the  company  and  its  directors,  officers,  servants, 
and  agents,  until  the  trial  of  the  action  or  further  order,  from  sub- 
scribing, advancing  or  paying,  out  of  the  moneys  of  the  company,  the 
sum  of  £1000,  or  any  other  sum,  by  way  of  donation,  or  otherwise,  to 
or  for  the  purposes  of  the  Imperial  Institute,  or  to  any  person  or  per- 
sons on  behalf  of  the  Institute. 

At  a  meeting  of  the  stockholders  or  "  proprietors  "  of  the  South- 
Eastern  Railway,  held  on  the  5th  of  March,  1887,  to  consider  a 
circular  issued  by  the  executive  council  of  the  Imperial  Institute  to 
the  South- Eastern  and  other  railway  companies,  inviting  them  to  sub- 
scribe to  the  funds  of  the  Institute,  the  following  resolution  was  passed, 
on  the  motion  of  the  chairman  of  the  company:  "  That  the  directors 
be  authorized,  either  by  way  of  donation  from  the  company  or  by  an 
appeal  to  the  proprietors,  as  the}7  may  be  advised,  to  subscribe  the  sum 
of  £1000  to  the  Imperial  Institute:  provided,  that  any  shareholder 
who  declines  to  be  a  party  to  any  such  donation  shall  have  his  propor- 
tion returned  to  him  with  his  next  dividend  warrant." 

1  Part  of  opinion  omitted.  —  ED. 


TOMKINSON   V.    SOUTH-EASTERN   RAILWAY   CO.  301 

The  resolution  was  carried  by  10,229  votes,  representing  £1,209,035 
ordinary  stock  of  the  company,  against  175  votes,  representing  stock 
to  the  amount  of  £13,500. 

The  Plaintiff  was  not  himself  present  at  the  meeting,  but,  having 
read  a  report  of  the  proceedings,  he,  on  the  llth  of  March,  wrote  to 
the  secretaiy  of  the  company  protesting  against  the  proposed  applica- 
tion of  an}-  of  the  company's  funds  towards  the  Imperial  Institute,  and 
threatening  legal  proceedings.  In  his  repl}'  the  secretary  pointed  out 
that  the  directors  were  accustomed  to  act  in  obedience  to  the  orders  of 
their  shareholders,  and  not  otherwise,  and  that,  having  regard  to  the 
amount  of  the  Plaintiff's  holding,  his  interest  in  the  contribution  of 
£1000  would  be  represented  by  about  13d. 

After  some  further  correspondence  the  Plaintiff  commenced  this 
action,  and  now  moved  as  above  stated. 

In  an  affidavit  in  opposition  to  the  motion,  the  company's  general 
manager  stated  that,  in  recommending  the  proprietors  to  contribute 
to  the  funds  of  the  Institute,  the  directors  desired  to  further  its  estab- 
lishment in  the  belief  that  a  great  number  of  visitors  would  thereby  be 
drawn  from  the  districts  served  by  their  railway  and  their  traffic 
largely  increased  ;  and  that,  inasmuch  as  the  previous  exhibitions  at 
/South  Kensington  had,  by  the  issue  of  through  tickets  from  their 
system  of  railways,  increased  the  traffic  revenue  of  the  company  by 
several  thousands  of  pounds,  the  directors  believed  that  the  establish- 
ment of  the  Institute  at  /South  Kensington  would  lead  to  a  similar 
result.  The  affidavit  further  stated  that  railway  companies  in  general 
had  been  accustomed  to  contribute  to  the  funds  of  objects  likely  to 
encourage  traffic  upon  their  lines,  such  as  race-meetings  and  regattas, 
and  also  to  hospitals  and  other  public  institutions  which  might  benefit 
their  employes. 

A.  Young,  for  the  Plaintiff :  — 

The  proposed  subscription  is  clearly  ultrct  vires,  it  not  being  one  of 
the  objects  for  which  the  company  was  incorporated  to  promote  or 
support  popular  exhibitions. 

Sir  It.  Webster,  A.  G.,  C.  T.  Mitchell,  and  Worsley  Taylor,  for  the 
Defendants :  — 

It  is  not  idtrd,  vires  of  a  company  to  expend  its  funds  for  the 
advantage  of  its  undertaking.  A  company  has  inherent  power  to  do 
whatever  may  be  conducive  to  its  popularity  or  to  the  objects  of  its 
undertaking :  Taunton  v.  Royal  Insurance  Company ; 1  Hampson 
v.  Price's  Patent  Candle  Company ; 2  Hutton  v.  West  Cork  JKail- 
way  Company;*  Pickering  v.  Stephenson.*  As  the  company  are 
not,  we  submit,  acting  ultrd,  vires,  the  Court  will  not  interfere  in  their 
internal  affairs  :  foss  v.  Harbottle  ; 6  Pickering  v.  Stephenson*  Even 

12H.&M.  135.  a  45  L.  J.  (Ch.)  437. 

8  23  Ch.  D.  654.  *  Law  Rep.  14  Eq.  322. 

6  2  Hare,  461.  6  Law  Rep.  14  Eq.  339. 


302  TOMKINSON   V.   SOUTH-EASTERN   RAILWAY   CO. 

if  the  proposed  subscription  is  ultrct  vires,  the  damage  to  the  Plaintiff 
is  so  infinitesimal  that  the  case  is  not  one  for  an  injunction. 

KAY,  J.  :  — 

I  have  no  doubt  that  it  is  the  duty  of  the  Court  to  grant  an  injunc- 
tion in  this  case. 

The  question,  as  the  Attorney-General  said,  is  whether  the  act  pro- 
posed to  be  done  is  within  the  powers  of  the  railway  company,  or  out- 
side its  powers.  If  it  is  outside  its  powers,  it  is  now  perfectly  settled 
that  any  one  shareholder  may  come  to  this  Court  and  say,  "  This  com- 
pany is  going  to  do  an  act  which  is  beyond  its  powers  :  stop  it ;  "  and 
the  Court  thereupon  has  no  discretion  in  the  matter. 

Now,  what  is  proposed  to  be  done  here  is  this :  the  chairman  of  the 
railway  company,  at  a  meeting  of  the  company,  proposed  this  resolu- 
tion :  "  That  the  directors  be  authorized,  either  by  way  of  donation 
from  the  company  or  by  an  appeal  to  the  proprietors,  as  the}7  may  be 
advised"  —  the  resolution  thus  proposing  two  alternative  modes  —  "  to 
subscribe  the  sum  of  £1000  to  the  Imperial  Institute"  I  pause  there. 

IThe  Imperial  Institute  has  no  more  connection  with  this  railway  corn- 
pan}7  than  the  present  exhibition  of  pictures  at  Burlington  House,  or 
the  Grosvenor  Gallery,  or  Madame  Tussaud's,  or  any  other  institu- 
tion in  London  that  can  be  mentioned.  The  only  ground  for  the  sug- 
gestion that  this  company  has  the  right  to  apply  its  funds,  which  it  has 
been  allowed  to  raise  for  specific  purposes,  to  this  purpose,  is,  that  the 
Imperial  Institute,  if  it  succeeds,  will  very  probably  greatly  increase 
.  the  traffic  of  this  company.  If  that  is  a  good  reason,  then,  as  I  pointed 
out  during  the  argument,  any  possible  kind  of  exhibition  which,  by 
being  established  in  London,  would  probably  increase  the  traffic  of  a 
railway  company  by  inducing  people  to  come  up  to  see  it,  would  be  an 
object  to  which  a  railway  company  might  subscribe  part  of  its  funds. 
I  never  heard  of  such  a  rule,  and,  as  far  as  I  understand  the  law,  that 
clearly  would  not  be  a  proper  application  of  the  moneys  of  a  railway 
company.  I  cannot  distinguish  this  case  from  that  at  all,  though,  of 
course,  I  do  not  mean  to  disparage  the  enormous  importance  of  the 
Imperial  Institute.  It  may  be  established  for  the  highest  possible 
objects  of  interest  to  this  country ;  but  still,  the  only  reason  given  to 
me  why  this  railway  company  thinks  it  right  to  spend  part  of  its  funds 
in  subscribing  to  it  is  this,  that  it  will  probably  greatly  increase  the 
traffic  of  the  company  by  inducing  many  people  to  travel  up  to  visit 
this  Institute.  I  cannot  accept  that  as  a  reason  for  a  moment.  There- 
fore, as  at  present  advised,  it  seems  to  me  that  this  is  ultrd,  vires. 

Before  I  go  further  I  will  read  the  rest  of  the  resolution  :  "  Provided, 
that  any  shareholder  who  declines  to  be  a  party  to  any  such  donation 
shall  have  his  proportion  returned  to  him  with  his  next  dividend  war- 
rant." That  means  this :  "  We,  the  directors,  propose  to  spend  money 
which  ought  to  be  divided  among  you,  the  shareholders,  in  paying  a 
subscription  to  this  Institute:  if  you  do  not  like  it,  we  admit  you  have 
a  right  to  object,  and  your  proportion  will  be  returned  to  you  with  your 


TOMKINSON   V.   SOUTH-EASTERN   RAILWAY  CO.  303 

\ 

next  dividend  warrant."  This  shareholder  says,  "  I  do  not  want  my 
money  spent  in  that  way  ;  "  and  he  is  right,  if  it  is  be}Tond  the  powers  of 
the  company,  in  saying  that  the  mone}r  shall  not  be  spent  in  that  way. 
Moreover,  his  objection  is  not  confined  to  his  own  share.  It  is  said 
that  his  share  of  the  subscription  would  be  comparatively  trivial ;  but, 
if  the  subscription  is  ultrd,  vires,  the  company  ought  not  to  spend  a 
farthing  of  their  funds  on  the  Institute.  His  objection  is  to  the  whole 
expenditure. 

-?FoTr-th~e'"cases  which  have  been  cited  realty  seem  to  me  to  be  author- 
ities directly  against  this  proposed  application  of  the  company's  funds. 

[The  learned  Judge  then  cited  and  commented  on  Taunton  v.  Royal 
Ins.  Co.,  2  H.  &  M.  135;  Hampson  v.  Price's  Patent  Candle  Co., 
45  L.  J.  (Chan.)  437;  and  Button  v.  West  Cork  R.  Co.,  L.  R.  23 
Chan.  Div.  654 ;  and  then  continued  as  follows  :] 

I  do  not  think  I  need  refer  particularly  to  Pickering  v.  Stephenson}- 
There  what  was  done  was  decided  to  be  ultrd,  vires,  but  seeing  that  the 
amount  which  the  plaintiff  would  be  entitled  to  recover  was  exceedingly 
minute,  the  Court  would  not  make  an  order  for  payment  back  to  him 
of  the  monej's  improperly  expended. 

Does  any  one  of  those  cases  touch  the  present?  Certainly,  I  should 
be  the  last  Judge  on  the  bench  to  extend  the  meaning  of  those  cases. 
It  is  absolutely  necessary  to  keep  incorporated  or  joint  stock  companies 
within  the  limits  of  their  powers.  That  is  a  rule  which  has  been  recog- 
nised over  and  over  again.  To  say  that,  because  the  authorities  which 
have  been  referred  to  have  held  that  the  acts  there  done  were  within 
the  limits  of  the  powers  of  the  company  in  each  case,  therefore  it 
follows  that  any  expenditure  which  may  indirectly  conduce  to  the 
benefit  of  the  company  is  intra  vires,  seems  to  me  extravagant. 

I  know  of  no  authority  whatever  for  saying  that  the  payment  of 
£1000  out  of  the  funds  of  this  company  as  a  subscription  to  the 
Imperial  Institute  would  be  within  the  powers  of  a  railway  compan}-. 
I  might  stop  there,  because,  this  being  an  application  for  an  inter- 
locutory injunction,  I  am  bound,  if  I  felt  difficulty  upon  the  question, 
to  restrain  the  matter  until  the  trial  of  the  action ;  but  my  present 
opinion  is  entirely  against  the  validity  of  this  act. 

Therefore,  it  seems  to  me  I  am  clearly  bound  to  restrain,  until  the 
trial  of  this  action,  the  expenditure  of  this  money  out  of  the  company's 
funds. 

An  alternative  is  suggested,  as  I  pointed  out,  in  the  resolution  invit- 
ing the  individual  proprietors  to  sanction  this  paj'ment  out  of  their 
funds,  because  it  says  "  either  by  way  of  donation  from  the  company 
or  by  an  appeal  to  the  proprietors,  as  they  may  be  advised."  An 
appeal  to  the  proprietors  means  an  appeal  to  subscribe  £1000,  which 
they  are  invited  to  give  to  the  Imperial  Institute.  To  that  no  kind  of 
objection  could  be  made ;  but  this  case  has  been  argued  on  the  footing 

1  Law  Rep.  14  Eq.  322. 


304  FORREST   V.   MANCHESTER,   ETC.    RAILWAY  CO. 


that  the  alternative  adopted  by  the  directors  has  been,  not  to  take 
that  step,  but  to  apply  the  moneys  of  the  compan}T.  That,  it  seems  to 
me,  the  Court  is  bound  to  restrain  them  from  doing,  and  I  therefore 
Want  an  injunction  in  the  terms  of  the  notice  of  motion,  the  Plaintiff 
giving  the  usual  undertaking  in  damages. 


\ 

\n 


FORREST  v.   MANCHESTER,    &c.    RAILWAY  CO. 

1 861 .     4  De  Gex,  Fisher  $•  Jones,  1 25.1 

THIS  was  the  appeal  .of  the  plaintiff  from  the  dismissal  of  his  bill 
by  the  Master  of  the  Rolls.  The  plaintiff  was  a  shareholder  in  the 
Manchester  &c.  Railway  Co. ;  and  sued,  on  behalf  of  himself  and 
the  other  shareholders  of  the  company,  for  an  injunction  to  restrain 
the  defendants  from  conveying  in  vessels  or  boats  passengers,  cattle, 
or  goods  from  Hull  or  Grimsby  to  Spurn  Point. 

The  bill  alleged  that  the  traffic  sought  to  be  restrained  was  beyond 
the  powers  of  the  company  under  their  Act,  and  was  also  prejudicial  to 
another  company  called  The  "  Gainsborough  United  Steam  Packet 
Company,  Limited,"  in  which  the  plaintiff  was  a  large  shareholder. 

The  answer  stated,  inter  alia,  that  the  suit  was  not  for  the  benefit  of 
the  other  shareholders  of  the  company  on  whose  behalf  the  plaintiff 
held  himself  out  as  suing,  but  was  instituted  solely  to  promote  and 
serve  the  interests  of  the  Gainsborough  United  Steam  Packet  Company 
Limited,  and  that  all  the  other  shareholders  of  the  defendants'  company 
were  opposed  to  the  suit. 

Evidence  was  gone  into,  and  the  plaintiff  on  his  cross-examination 

admitted,  that  he  held  only  821.  stock  in  the  railway  compan}',  but  was 

the  holder  of  twelve  30?.  shares  in  the  packet  company,  which  was 

paying  a  dividend  of  10J.  per  cent ;  and  that  the  excursion  traffic  had 

I /been  continued  for  eight  or  ten  years.     He   also   admitted  that  the 

/  directors  of  the  packet  company  had  directed  the  institution  of  the  suit, 

w  and  indemnified  him  against  costs.     The  Master  of  the  Rolls  dismissed 

the  bill  on  the  ground  that  the  Act  sought  to  be  restrained  was  not 

ultra  vires. 

Selwyn,  and  E.  K.  KarskiJce,  for  appellant.     [Citations  omitted.] 

The  Solicitor  General  (Sir  JK.  Palmer)  and  Fischer,  for  respond- 
ents, were  not  called  upon. 

THE  LORD  CHANCELLOR  [WESTBURY].  In  this  case  I  am  asked  to 
reverse  the  order  of  the  Master  of  the  Rolls  dismissing  this  bill  with 
costs.  I  desire  it  to  be  distinctly  understood  that  my  decision  does 
not  proceed  upon  the  grounds  stated  by  the  Master  of  the  Rolls.  It  is 

1  Statement  abridged.  —  ED. 


FORREST   V.   MANCHESTER,   ETC.   RAILWAY  CO.  305 

unnecessary  for  me  to  express  any  opinion  upon  the  grounds  stated  by 
his  Honor  which,  if  they  are  correct,  would  be  confined  entirely  to  this 
particular  case,  because  they  have  reference  to  the  peculiar  constitution 
of  the  present  compan}'.  But  the  ground  upon  which  I  proceed  is  en- 
tirely that  of  personal  exception  to  the  character  of  the  plaintiff,  and 
the  foundation  of  my  decision  is  contained  in  this  passage  of  the  plain- 
tiff's own  examination  not  attempted  to  be  qualified  or  questioned.  He 
says  in  that  examination  "  The  directors  of  the  packet  company 
directed  the  institution  of  this  suit  and  indemnify  me  against  costs." 
It  is  not  that  the}'  persuaded  him  to  institute  the  suit,  not  that  they 
instigated  the  suit,  but  that  the  directors  of  the  other  compan}*  have 
"directed  the  suit,"  and  are  to  indemnify  the  plaintiff  against  the 
costs  of  it.  To  use  a  familiar  expression,  the  plaintiff  is  the  puppet  of  ' 
that  companj*.  It  has  been  a  very  wholesome  doctrine  of  this  Court 
~HuU  une  yhUleHolder  having  in  view  the  legitimate  purposes  of  the  com- 
pany may  be  permitted  in  this  Court  to  maintain  a  suit  on  behalf  of 
himself  and  the  other  shareholders  of  the  company,  jjut  the  principle 
upon  which  that  constructive  representation  of  the  shareholders  is  per- 
mitted indisputably  requires  that  the  suit  shall  be  a  bond  fide  one, \ 
'jaitntully,  truthfully,  sincerely  directed  to  the  benefit  and  the  interests  J 
"of  those  shareholder's  Wfrom  the  plaintiff  claims  a  right  to  represent. 
liut  can  1  permit  a  man  who  is  the  puppet  of  another  company  to 
represent  the  shareholders  of  the  company  against  whom  he  desires  to 
establish  the  interests  and  benefits  of  a  rival  scheme?  That  would  be 
entirely  contrary  to  the  principle  upon  which  this  constructive  repre- 
sentation has  been  permitted  to  be  founded.  When  the  plaintiff  sues 
in  that  capacity  any  personal  exception  to  the  plaintiff  remains,  and  it 
would  be  in  direct  contradiction  of  every  principle  of  truth  and  justice 
if  I  permitted  a  man  to  come  here  clothed  in  the  garb  of  a  shareholder 
of  company  A.,  but  who  is  in  reality  a  shareholder  in  company  B., 
and  has  no  sympathy  whatever  with,  no  real  purpose  of  promoting  the 
interests  of  the  other  company.  Such  a  thing  would  be  so  much  at 
variance  with  the  principles  of  a  Court  of  Equity  that  it  would  be 
impossible  for  it  to  entertain  a  suit  of  that  description  which  is  a  mere 
mockery,  a  mere  illusory  proceeding. 

It  is,  however,  said  that  this  objection  was  considered  some  years 
ago  in  the  well-known  case  of  Colman  v.  The  Eastern  Counties  Rail- 
way Company,1  and  was  overruled  by  the  late  Master  of  the  Rolls, 
Lord  LANGDALE.  All  I  mean  to  say  about  that  case  is  that  the  objec- 
tion there  proceeded  upon  a  different  ground.  The  proposition  of  Lord 
LANGDALE  is  that  it  is  no  ground  of  personal  exception  to  a  plaintiff 
that  he  has  been  instigated  to  institute  his  suit  by  another  company.  " 
If  the  proposition  be  limited  to  the  extent  of  the  words  in  which  it  is 
expressed,  possibly  there  may  be  no  exception  to  that  proposition,  but 
undoubtedly  I  would  not  assent  to  it  if  carried  one  jot  beyond  those 

i  10  Beav.  1. 
20 


306  FORREST   V.   MANCHESTER,   ETC.   RAILWAY  CO. 

limits.  I  desire^  however,  to  point  out  again  the  wide  difference  which 
exists  between  a  suit  "  directed"  to  be  instituted  by  the  directors  of 
another  company,  and  a  suit  which  is  bond  fide  instituted  b}*  the  plain- 
tiff, persuaded  only  to  the  institution  of  it  by  the  arguments  of  another 
company.  In  the  one  case  the  suit  is  the  suit  of  the  plaintiff,  and  is 
for  ought  that  appears  instituted  at  the  peril  of  the  plaintiff.  In  the 
other  case,  the  whole  origin  of  the  suit  and  the  direction  and  conduct 
of  it  emanate  altogether  from  the  other  company,  and  the  suit  would 
have  no  existence  whatever  but  for. the  order  of  the  other  company. 
I  consider,  therefore,  that  the  language  in  which  the  Master  of  the 
Rolls  expresses  himself  upon  the  proposition  then  submitted  to  him 
does  not  in  the  smallest  degree  interfere  with  or  weaken  the  ground 
that  I  have  taken. 

I  have  nothing  to  do  with  the  motives  of  plaintiffs  suing  in  this 
Court.  If  they  come  here  in  a  bond  fide  character,  the  reason  for  their 
coming  here  is  a  matter  beyond  the  province  of  a  Court  of  Justice  to 
inquire  into.1  But  if  a  man  comes  here  representing  to  me  that  he  is  a 
bond  fide  shareholder  in  a  company,  and  that  it  is  the  bond  fide  suit  of 
that  company,  and  it  turns  out  not  to  be  the  suit  of  that  company,  but 
in  reality  to  be  in  its  origin  and  its  very  birth  and  creation  the  suit  of 
another  companj",  then  I  repeat  that  this  is  an  illusory  proceeding,  and 
ought  not  to  be  attended  to  b}"  the  Court.  The  well-known  words,  — 
the  trite  quotation,  —  will  occur  to  the  minds  of  those  who  hear  me. 
"  Fabula  non  est  judicium  in  scena  non  in  foro  res  agitur."  If  this 
gentleman  be  permitted  to  come  and  assume  merely  for  the  purpose  of 
coming  into  this  Court  the  garb  of  a  shareholder,  but  at  the  same  time 
explicitly  announces,  "  This  suit  is  not  directed  to  the  purposes  of  that 
company  ;  I  have  nothing  in  common  with  the  shareholders  of  that 
company ;  it  has  not  emanated  from  the  wish  of  the  sharehold- 
ers ;  it  does  not  emanate  from  me  as  a  shareholder ;  it  is  not  my 
act :  I  am  directed  to  do  it  by  another  part}',  and  another  body  of 
men,"  then  in  point  of  fact  the  suit  is  not  the  expression  of  his  own 
will,  nor  is  it  the  legitimate  prosecution  of  his  own  interests  or  his  own 
objects,  but  it  is  the  prosecution  of  the  interests  and  objects  of  persons 
who  have  no  right  whatever  to  invoke  the  interference  of  this  Court. 

I  treat  this  suit  as  an  imposition  on  the  Court.  By  these  words 
I  mean  no  reflection  upon  the  plaintiff  himself,  because  he  has  told  the 
truth,  and  does  not  appear  at  any  time  to  have  desired  to  conceal  it. 
But  as  he  comes  here  in  the  character  of  a  shareholder  in  the  compan}*, 
and  tells  me  frankly  that  the  institution  of  the  suit  is  not  his  own  act, 
but  an  act  that  he  has  been  directed  to  do  by  the  other  company,  then, 
using  the  words  without  offence,  I  denominate  that  suit  an  imposition 
on  the  Court,  and  I  dismiss  it  according!}",  and  affirm,  though  on  a  dif- 
ferent ground,  the  order  that  has  been  made. 

I  refuse  this  application  with  costs. 

1  See  Kerr  Inj.  549. 


SEATON   V.   GRANT.  307 


SEATON  v.   GRANT. 

1867.     L.  R.  2  Chan.  Ap.  459.1 

THIS  was  an  appeal  from  an  order  made  on  the  12th  of  February, 
18G7,  by  Vice-Chancellor  Matins,  refusing  an  application  of  the 
Defendants  that  the  bill  might  be  taken  off  the  file,  or  that  ail  further 
proceedings  might  be  stayed. 

The  bill  was  filed  by  Charles  Seaton,  on  behalf  of  himself  and  all 
other  shareholders  in  the  Credit  .Fonder  and  Mobilier  of  England, 
Limited,  except  the  Defendant,  Albert  Grant,  against  Albert  Grant, 
George  Edward  Seymour,  and  the  above-named  company,  under  the 
following  circumstances :  — 

The  Defendant,  Albert  Grant,  was  the  managing  director  of  the 
above-named  company.  The  Defendant,  George  Edward  Seymour, 
was  the  chairman  of  a  company  called  the  City  of  Milan  Improvements 
Company.  The  Plaintiff  alleged  that  the  two  last-named  Defendants 
had,  in  the  year  1865,  formed  what  is  called  a  "  syndicate"  on  the 
Stock  Exchange  ;  that  is,  a  combination  for  the  purpose  of  raising  the 
value  of  the  shares  of  the  Milan  Company  to  a  fictitious  premium  ;  and 
that,  with  this  end,  Grant  had  purchased  12,129  shares  in  the  Milan 
Company,  and  paid  for  them  out  of  the  funds  of  the  Credit  Fonder,  by 
which  the  latter  company  had  sustained  a  great  loss,  the  shares  of 
the  Milan  Company  having  fallen  very  much  in  value. 

He  also  alleged  that  the  Defendants  were  taking  measures  to  re- 
constitute the  Credit  Fonder,  by  dissolving  the  company,  and  trans- 
ferring its  assets  and  liabilities  to  a  new  company. 

The  bill  prayed  that  the  Defendants,  Grant  and  Seymour,  might 
repay  to  the  Credit  Fonder  the  money  expended  in  the  purchase  of 
the  shares  in  the  Milan  Company,  and  that  the  Credit  Fonder  might 
be  restrained  from  handing  over  their  assets  to  any  other  company, 
until  all  their  debts  and  liabilities  had  been  paid  and  satisfied. 

The  bill  was  filed  on  the  19th  of  July,  1866,  and  immediately  after- 
wards the  Plaintiff  moved  for  an  injunction,  in  terms  of  the  prayer, 
before  Vice-Chancellor  Kindersley,  who  refused  the  motion  with  costs. 

On  the  occasion  of  the  motion,  the  Plaintiff  was  cross-examined  in 
Court,  when  it  appeared  that  he  held  only  five  shares  of  £20  each  in 
the  Credit  Fonder,  which  he  acquired  solety  for  the  purpose  of  filing 
this  bill ;  and  that  his  reason  for  filing  the  bill  was  that  he  and  several 
of  his  friends  had  lost  mone}r  by  speculating  in  shares  of  the  Credit 
Fonder,  and  that  he  was  advised  that  if  he  bought  shares,  and  then 
filed  a  bill  to  impeach  certain  transactions  of  which  he  had  notice, 
he  would  probably  be  bought  off  at  a  high  price,  and  so  obtain 
compensation. 

1  Portions  of  argument,  and  of  opinions,  omitted.  —  ED. 


308  SEATON   V.   GRANT. 

Subsequently  to  the  filing  of  the  bill,  two  extraordinary  meetings 
of  the  Credit  Fonder  were  held  on  the  30th  of  July  and  the  15th  of 
August,  1866,  at  which  resolutions  were  passed  for  winding  up  the 
company  voluntarily,  and  for  the  formation  of  a  new  compan}*,  for 
objects  which  would  include  the  carrying  on  of  the  business  gf  the 
Credit  Fonder. 

The  Defendants  put  in  answers  to  the  bill,  but  refused  to  give  full 
information  to  the  Plaintiff  as  to  the  transactions  complained  of ;  and 
their  answers  were  excepted  to  by  the  Plaintiff. 

The  motion  now  under  appeal  was  made  by  the  Defendants  Grant 
and  the  Credit  Fonder,  and,  having  been  refused  by  the  Vice-Chancellor, 
was  now  renewed  before  the  Lords  Justices. 

The  Attorney-  General  (Sir  John  Holt),  Mr.  Karslake,  Q.C.,  and  Mr. 
Waller,  for  the  company  ;  and 

Sir  Roundett  Palmer,  Q.C.,  Mr.  Bailey,  Q.C.,  and  Mr.  Speed,  for  the 
Defendant  Grant:  — 

We  sa}',  first,  that  this  suit  is  not  bond  fide.  The  Plaintiff  had  no 
shares  in  the  company  while  the  bill  was  being  prepared ;  he  bought 
five  shares  just  before  it  was  filed,  and  can  give  no  reason  for  his 
proceedings,  but  that  he  had  lost  money  by  speculating  in  the  shares 
of  the  compan}',  and  wanted  to  make  the  company  repay  him  these 
losses.  The  Court  will  not  entertain  such  a  bill :  Forrest  v.  Man- 
chester, Sheffield,  and  Lincolnshire  Railway  Company}-  That  case 
decided  that  the  Plaintiff  must  have  a  legitimate  interest  in  the  subject 
matter  of  the  suit.  The  interest  of  the  Plaintiff  is  merely  nominal.  If 
his  whole  claim  is  recovered,  and  divided  among  the  shareholders,  his 
share  would  be  about  40s.  Such  a  bill  is  an  abuse  of  the  process  of 
the  Court,  and  partakes  of  the  nature  of  maintenance :  Filder  v. 
London,  Brighton,  and  South  Coast  Railway  Company  /2  Foxwell 
v.  Webster? 

[Remainder  of  argument  omitted.] 

Mr.  Wickens,  for  defendant  Seymour. 

Mr.  Glasse,  Q.C.,  and  Mr.  Cracknall,  for  plaintiff,  were  not  called  on. 

[The  opinion  of  SIR  G.  J.  TURNER,  L.  J.,  is  omitted.] 

LORD  CAIRNS,  L.  J.  This  motion  is  one  of  a  very  novel,  but  of  a 
verjr  important  character,  because  it  asks  the  Court  to  shut  the  door 
in  the  face  of  the  Plaintiff,  not  on  the  merits  of  the  case,  but  on  the 
ground  that  he  has  by  his  conduct  disentitled  himself  to  institute  the 
suit.  The  theory  of  the  law  of  this  country  is,  that  every  subject  has 
a  right  to  bring  his  complaint  to  a  hearing,  if  it  be  not  capable  of 
being  stopped  by  a  demurrer  or  a  plea.  The  exceptions  which  have 
been  established  to  this  rule  merely  shew  the  strength  of  the  general 
rule.  Those  exceptions  are  four  in  number :  —  First,  where  the  Plaintiff 
is  required  to  give  security  for  costs.  That  is  hardly  an  exception, 
because  the  Court  only  stays  the  proceedings  in  the  suit  until  the 

i  9  W.  R.  818.  *  1  H.  &  M.  489. 

8  12  W.  R.  94,  18& 


SEATON  V.   GRANT.  309 

security  is  given.  Second,  where  the  Defendant  is  willing  to  give  to 
the  Plaintiff  all  the  relief  which  he  asks,  and  to  pay  his  costs  of  the 
suit.  Third,  where  the  subject  matter  of  the  litigation  has  perished,  or 
has  been  removed,  and  nothing  remains  to  be  decided  but  the  payment 
of  costs  of  the  suit.  There  the  Court  considers  that  it  would  be  useless 
to  allow  the  suit  to  go  on  to  a  hearing  when  the  only  question  to  be 
determined  can  be  as  well  decided  upon  motion.  Fourth,  where  the 
bill  has  been  filed  without  the  authority  of  the  person  who  appears  as 
the  Plaintiff,  or  where  the  name  of  a  corporation  has  been  used  without 
a  sufficient  title  to  use  it.  In  such  a  case  the  bill  is  treated  as  a  fraud 
upon  the  Court,  and  is  therefore  ordered  to  be  taken  off  the  file. 

The  grounds  alleged  for  the  present  motion  are  three :  —  First,  a 
personal  exception  to  the  Plaintiff.  I  do  not  think  that  I  unfairly 
represent  the  conclusion  which  the  parties  desire  to  draw  from  the 
cross-examination  of  the  Plaintiff  if  I  put  it  in  this  way.  The  Plaintiff 
had  in  a  collateral  way  lost  some  money,  and  he  then  finds  a  blot  in  the 
management  of  the  company  of  which  he  thinks  the  shareholders  might 
complain.  He  buys  five  shares  in  the  company,  and  then  files  this  bill, 
in  order  to  induce  the  company  to  bu}r  off  the  litigation.  That,  no 
doubt,  is  a  course  of  conduct  which  would  meet  with  little  approval  in 
this  Court,  or,  indeed,  in  any  other  Court,  and  such  conduct  might  be 
material  at  the  hearing  with  reference  to  the  amount  of  relief  which  the 
Plaintiff  could  obtain,  or  whether  he  was  entitled  to  an}-  relief  at  all. 
But  the  question  is,  whether  these  facts  are  necessarily  fatal  to  the 
Plaintiff's  claim  to  relief  ?  Suppose  an  answer  were  put  in  admitting 
all  the  allegations  contained  in  the  bill,  it  would  be  difficult  to  say  at 
this  stage  of  the  suit  that  the  Plaintiff's  conduct  would  altogether  dis- 
entitle him  to  relief.  The  case  of  Forrest  v.  Manchester,  Sheffield,  and 
Lincolnshire  Railway,*  which  was  relied  upon  in  the  argument,  is  dis- 
tinguishable from  the  present  case  upon  two  grounds :  first,  because 
that  was  the  hearing  of  the  cause  ;  and,  secondly  (and  this  is  the  main 
distinction),  because  there  the  Court  came  to  the  conclusion  that  the 
Plaintiff  was  simply  a  puppet  in  the  hands  of  another  company,  and 
that  he  was  indemnified  by  that  company  against  the  costs  of  the  suit. 
That  objection  amounted  to  this,  that  a  suit  professing  to  be  the  suit 
of  Company  A.,  was  really  the  suit  of  Company  B. 

The  second  ground  relied  on  in  support  of  this  motion  was,  that  the 
Plaintiff's  quantum  of  interest  in  the  suit  was  very  insignificant.  But 
if  we  should  hold  that  the  suit  can  be  maintained  in  other  respects,  I 
think  that  the  aggregate  interest  of  all  the  shareholders  in  the  subject 
matter  of  the  suit  is  amply  sufficient  to  sustain  the  suit. 

[Remainder  of  opinion  omitted.] 

Motion  refused  with  costs. 
i  9  W.  K.  818. 


310  WINSOR   V.   BAILEY. 


WINSOR  v.  BAILEY, 

1875.     55  New  Hampshire,  21 8.1 

BILL  in  equity  by  Winsor  et  als.  against  the  Hooksett  MTg  Co., 
and  various  individuals ;  alleging  that  certain  monies  of  the  company 
have  been  wrongfully  paid  over  to  some  of  the  defendants  ;  and  pray- 
ing that  the  recipients  may  be  decreed  to  repay  the  same  to  the  corpo- 
ration. The  bill  alleges  that  the  plaintiffs  are  owners  of  stock  in  the 
company,  and  sets  out  specifically  the  number  of  shares  owned  by 
each ;  but  does  not  alleg^  t>iai  they  werp  owners  of  stonk  at  the^time 
nfL-tkfupapTierits  complained  of.  Defendants  demurred. 

Mugridge,  for  plaintiffs. 

Fowler  and  Tappan,  for  defendants. 

LADD,  J. 

2.  The  bill  alleges  that  the  plaintiffs  are  owners  of  stock,  and  sets 
out  specifically  the  amount  owned  by  each.  It  is  contended  for  the 
defendants  that  the  bill  is  defective  in  not  showing  that  they  were 
owners  of  stock  at  the  time  of  the  alleged  wrongful  payment  to  some 
or  all  of  the  defendants.  No  authority  is  referred  to  in  support  of  this 
position,  and  I  see  no  sound  reason  upon  which  it  can  be  sustained. 
To  hold  so,  would  seem  to  involve  the  singular  consequence  that  the 
transfer  of  stock  in  a  corporation  extinguishes  the  right  to  inquire  into 
/  the  previous  fraudulent  conduct  of  its  officers,  whereby  its  funds  have 
been  misappropriated. 

GUSHING,  C.  J.,  concurred. 

SMITH,  J.  2.  The  plaintiffs  allege  that  they  are  stockholders  in  the 
Hooksett  Manufacturing  Compam^,  and  specify  the  number  of  shares 
owned  by  each,  but  do  not  allege  that  they  were  stockholders  at  the  time 
the  dividend  was  paid  the  defendants.  But  that  is  not  necessar}',  and  it 
is  immaterial  whether  they  were  or  not.  The  transfer  of  the  stock  con- 
veyed to  them  not  only  the  ownership  of  the  shares  and  the  right  to 
the  future  dividends  thereon,  but  also  placed  them  on  an  equal  foot- 
ing with  the  other  stockholders  in  respect  to  the  right  to  call  the 
officers  and  agents  of  the  corporation  to  an  account  for  their  fraud- 
ulent conduct. 


1  Only  so  much  of  the  case  is  given  as  relates  to  one  point.  —  ED. 


PARSONS   V.   JOSEPH.  311 


PARSONS  v.  JOSEPH. 

1890.     92  Alabama,  403.1 

APPEAL  from  the  Chancery  Court  of  Jefferson. 

Heard  before  the  Hon.  THOMAS  COBBS. 

The  bill  in  this  case  was  filed  on  the  19th  day  of  Juty,  1890,  by 
Henry  Joseph,  as  a  stockholder  in  the  Birmingham,  Powderly  & 
Bessemer  Street  Railroad  Compam*,  against  the  said  corporation  and 
J.  H.  Parsons ;  and  sought  the  cancellation  of  certain  certificates  of 
stock  issued  by  the  corporation  to  said  Parsons,  on  the  ground  that  the 
stock  was  fictitious  and  fraudulent.  There  was  a  demurrer  to  the  bill, 
and  a  motion  to  dissolve  the  injunction,  each  of  which  was  overruled ; 
and  this  appeal  is  sued  out  by  the  defendants  from  that  interlocutory 
decree. 

Lea  &  G-reene,  for  appellants. 

White  &  Hoicze,  contra. 

COLEMAN,  J.  The  purpose  of  the  bill  is  to  have  certain  certificates 
of  stock  issued  b}'  the  Birmingham,  Powderlj-  &  Bessemer  Street  Rail- 
road Co.  to  defendant  Parsons,  cancelled,  on  the  ground  that  the  stock 
is  fictitious,  and  was  issued  in  violation  of  the  Constitution  and  statute 
law  of  the  State.  The  bill  prav'ed  an  injunction,  and  the  writ  was 
awarded  b}-  the  chancellor.  A  demurrer  was  interposed,  and  also  an 
answer  by  the  defendant  Parsons.  The  cause  was  submitted  for 
decree  on  the  demurrer,  and  upon  motion  to  dissolve  the  injunction. 
The  court  overruled  the  demurrer,  and  denied  the  motion  to  dissolve 
the  injunction,  and  from  this  interlocutor}"  decree  the  appeal  is  taken. 

Among  other  averments,  the  bill  substantially  alleges  that  plaintiff 
is  a  bona  fide  stockholder  in  said  company ;  that  shortly1  after  the 
organization  of  the  company,  the  defendant  subscribed  for  one  hundred 
and  seven  shares  of  the  capital  stock  of  the  company,  of  the  par  value 
of  fifty  dollars  each,  and  paid  for  the  same  in  full  by  conveying  to  the 
compan}-  thirty-nine  acres  of  land  (describing  the  land)  at  an  agreed 
price  and  valuation  of  one  hundred  and  thirty-seven  dollars  per  acre, 
when  the  land  was  not  worth  more  than  twenty-five  dollars  per  acre, 
and  for  this  land  Parsons  was  to  receive  one  hundred  and  seven  shares 
of  the  stock  ;  that  shortly  thereafter,  the  capital  stock  of  the  company 
was  doubled,  and  without  further  consideration  than  the  thirty-nine 
acres  of  land,  Parsons'  stock  was  doubled,  and  he  received  two  hun- 
dred and  fourteen  shares  of  the  capital  stock.  The  bill,  as  amended, 
charges  the  excessive  valuation  of  the  land  was  made  knowingly,  wil- 
fully, and  with  the  fraudulent  intent  of  having  issued  to  Parsons  the 
fictitious  stock,  in  violation  of  law.  This  is  a  sufficient  statement  of 
the  facts  for  the  consideration  of  the  demurrer. 

1  Arguments  omitted.  —  ED. 


312  PARSONS   V.   JOSEPH. 

The  demurrer  admits  the  truth  of  the  averments.  It  is  contended, 
that  the  bill  is  defective  in  not  averring  that  plaintiff'  was  a  stockholder 
at  the  time  of  the  transaction,  complained  of  as  being  fraudulent,  or 
that  his  stock  devolved  upon  him  by  operation  of  law. 

In  the  case  of  Dimpfell  v.  Ohio  &  Miss.  R.  It.  Co.,  110  U.  S.  p. 
209,  relied  upon  by  appellant,  it  was  held,  that  a  stockholder,  contest- 
ing as  ultra  vires  an  act  of  the  directors,  should  aver  "  that  he  was  a 
stockholder  at  the  time  of  the  transaction  of  which  he  complains,  or 
that  his  shares  have  devolved  on  him  since  by  operation  of  law."  To 
the  same  effect  was  Haices  v.  Oakland,  104  U.  S.  450 ;  and  many 
others  might  be  cited.  Upon  an  examination  of  these  authorities,  it 
will  be  seen  that  the  principle  asserted  rests  solel}'  upon  equity  Rule 
No.  94  adopted  by  the  United  States  Supreme  Court  and  which  may 
be  found  in  the  preface  to  vol.  104  of  U.  S.  Reports.  Morawetz  on 
Private  Corporations,  speaking  of  this  rule,  says,  it  was  evidently  de- 
signed as  a  rule  of  practice  merely,  and  was  deemed  necessary  to  guard 
courts  from  being  imposed  upon  b}'  collusion  of  parties.  —  Morawetz 
on  Priv.  Corp.,  §§  269,  270.  The  rule  is  not  a  general  principle  of 
law,  applicable  to  pleadings  in  all  the  courts,  and  has  never  been 
applied  to  the  courts  of  this  State.  The  demurrer  to  the  bill  for  fail- 
ing to  make  this  averment  was  property  overruled. 

The  motion  to  dissolve  the  injunction  was  heard  upon  the  sworn  bill 
and  answer.  The  answer  denied  that  plaintiff  was  a  bona  fide  stock- 
holder, and  set  up  that  plaintiff  was  the  transferee  of  one  E.  Lesser. 
The  answer  admits  that  defendant's  stock  was  doubled  without  the 
paj'ment  of  anjT  additional  consideration  than  that  of  the  land  ;  but  by 
way  of  explanation  and  defense,  avers  that  the  lands  were  not  truly 
and  properly  valued  at  first,  and  the  increased  valuation  of  the  lands 
only  raised  them  to  their  real  and  true  value,  and  the  additional  issue 
of  stock  was  for  propert}r  at  its  fair  valuation.  The  answer  continues, 
however,  as  follows:  that  if  said  transaction  had  been  illegal  and 
fraudulent,  and  not  done  in  good  faith,  complainant  is  estopped  from 
setting  up  fraud  in  said  transaction,  or  seeking  to  cancel  said  stock, 
because  E.  Lesser,  who  was  complainant's  transferrer,  participated  in 
all  of  said  transactions  and  himself  fixed  the  value  of  said  lands,  with 
full  knowledge  of  and  after  full  investigation  of  the  value  of  said  land. 

A  transferree  of  stock  is  not  necessarily  disqualified  as  a  suitor  in  all 
cases,  because  the  prior  holders  were  personalty  disqualified.  If  the 
transferee  purchased  the  shares  in  good  faith,  and  without  notice  of 
the  fact  that  the  prior  holder  had  precluded  himself  from  suing,  he 
/  would  have  as  just  a  title  to  relief,  as  if  he  had  purchased  from  a  share- 
holder who  was  under  no  disability ;  but,  if  the  purchaser  was  aware 
that  the  prior  holder  had  barred  his  right  to  relief,  neither  justice  nor 
public  policy  would  require  that  the  transferee,  under  these  circum- 
stances, should  be  accorded  any  greater  rights  than  his  transferrer.  — 
Morawetz.  supra,  §  267. 

The  same  rule  prevails  in  this  State  in  favor  of  derivative  purchasers. 


PARSONS   V.   JOSEPH.  313 

If  a  claimant  was  a  bona  fide  purchaser,  without  notice  of  a  fraud, 
or  of  facts  which  the  law  considers  sufficient  to  establish  it,  or  from 
which  it  is  inferable,  then  he  could  not  be  affected  by  notice  to  his 
vendor.  —  Horton  v.  Smith,  8  Ala.  78  ;  Fenno  v.  Sayre,  3  Ala.  458  ; 
Weer  v.  Davis,  4  Ala.  442 ;  Martinez  v.  Lindsey,  91  Ala.  334 ;  Wait 
on  Insol.  Cor.,  §§  628,  630. 

If  a  stockholder  participates  in  a  wrongful  or  fraudulent  contract,  or 
silently  acquiesces  until  the  contract  becomes  executed,  he  can  not 
then  come  into  a  court  of  equity,  to  cancel  the  contract,  and  more 
especiallj*,  if  the  company,  or  himself,  as  a  stockholder,  has  reaped  a 
benefit  from  the  contract ;  and  this  rule  holds  good,  although  the  con- 
sideration of  the  contract  ma}r  be  one  expressly  prohibited  by  statute. 
The  same  disability  would  attach  to  the  transferee  of  his  stock  who 
bought  with  notice.  We  consider  this  general  rule  of  equity  abund- 
antly sustained.  —  Morawetz  on  Priv.  Corp.,  §§  261,  262;  Cook  on 
Stock  and  Stockholders,  §§  39,  40,  735  ;  Wright  v.  Hughes,  12  Amer. 
St.  Rep.  413.  It  is  sustained  by  the  familiar  rule,  that  he  who  invokes 
the  aid  of  a  court  of  equity  must  have  clean  hands.  Mr.  Cook  states 
the  conditions  upon  which  a  stockholder  can  sustain  a  suit  to  remedy  the 
frauds,  ultra  vires  acts  or  negligence  of  directors,  to  be,  first,  the 
acts  complained  of  must  be  such  as  to  amount  to  a  breach  of  trust,  and 
such  as  neither  a  majorit}'  of  the  directors  nor  of  the  stockholders  can 
ratify  or  condone ;  second,  that  the  complaining  stockholder  himself  is 
free  from  laches,  acquiescence  of  the  acts  to  remedy  which  the  suit  is 
brought,;  third,  that  the  corporation  has  been  requested  and  refused  or 
neglected  to  institute  the  suit,  that  the  suit  is  instituted  by  bonafide 
stockholders  as  complainants,  and  that  the  corporation  and  the  guilty 
parties,  and  other  proper  parties  have  been  made  defendants.  Cook, 
supra,  §  646. 

If  the  averments  of  the  bill  are  sustained  by  proof,  the  stock  issued 
to  the  defendants  was  in  violation  of  section  1662  of  the  Code  and 
of  section  6,  Article  XIV  of  the  Constitution.  On  the  contrary,  if  the 
proof  shows  that  the  property  was  received  in  payment  of  stock,  at  a 
fair  valuation,  such  would  not  be  the  result.  —  Davis  Bros.  v.  Mont- 
gomery Fur.  &  Chem.  Co.,  at  present  term. 

In  cases  where  the  stockholders  of  the  company  by  any  laches, 
acquiescence,  or  participation  in  the  unlawful  and  fictitious  issue  of 
stock  or  for  any  other  sufficient  cause  are  precluded  from  instituting 
the  proper  proceedings,  to  remed}1  the  wrong,  the  remedy  is  still  open 
to  the  State  to  institute  all  necessary  and  proper  proceedings  to  vacate 
and  dissolve  the  corporation,  or  have  such  other  proper  judgment  and 
decree  rendered,  as  the  proof  and  justice  may  demand. 

It  may  be,  that  stockholders,  who  knowingly  and  intentionally  have 
subscribed  and  paid  for  stock  with  property  upon  a  fictitious  valuation, 
are  liable  as  stockholders  who  have  not  paid  up  in  full  for  their  stock, 
within  the  meaning  of  the  statute,  to  creditors  who  have  not  precluded 
themselves  from  maintaining  the  suit.  — Wait,  supra,  §  593  ;  Douglas 
v.  Ireland,  73  N.  Y.  100 ;  Boynton  v.  Andrews,  63  N.  Y.  93. 


314  PARSONS   V.   HAYES. 

Applying  the  rule  of  law  applicable  when  a  motion  to  dissolve  an  in- 
junction is  submitted  upon  bill,  exhibits,  and  answer,  and  considering 
only  so  much  of  the  answer  as  is  responsive  to  the  bill,  we  are  of  opin- 
ion that  the  decretal  order,  overruling  the  demurrers  and  motion  to 
dissolve  the  injunction,  is  free  from  error. 

Affirmed. 

The  case  of  Downey  v.  Joseph  was  affirmed  on  the  authority  of  the 
above  case. 


PARSONS   v.   HAYES. 

1883.     14  Abbott's  New  Cases  (N.  Y.),  419.1 

PLAINTIFF  sues  on  behalf  of  himself  and  all  other  shareholders  in  the 
Varhuff  Mining,  &c.  Co.,  a  corporation  formed  under  the  laws  of  New 
York.  The  defendants  are  the  corporation,  and  various  individuals 
who  are  officers  of  the  same.  The  complaint  alleged,  inter  alia,  that 
the  corporation  was  under  a  disability  to  sue,  by  reason  of  being  con- 
trolled by  its  directors,  who  were  guilty  of  malfeasance  in  office.  The 
other  averments  are  stated  in  the  opinion. 

The  original  complaint  was  demurred  to.  The  demurrer  was  over- 
ruled, but  plaintiff  amended  the  complaint.  Defendants  answered. 
Plaintiff  demurred  to  certain  matters  set  up  as  defenses.  Certain 
of  plaintiff's  demurrers  were  overruled,  and  others  were  sustained. 
Plaintiff  appealed  to  the  General  Term  of  the  Superior  Court,  from 
the  order  overruling  his  demurrers  to  certain  defenses  set  out  in  the 
answer. 

Grove  M.  Harwood  and  John  B.  0'Donnell,  for  appellant. 

[Omitting  part  of  argument.] 

III.  The  corporation  could  sue,  as  it  is  a  distinct  person  from  its 
shareholders   (Pollock  on  Contr.,    81,   82;    Lindley  on  Partn.  4,   5; 
Dicey  on  Parties,  163).     The  members  are  but  agents  of  the  corpora- 
tion and  the  corporation  may  sue  its  members  (Society  v.  Abbott,  2 
Beav.  559). 

IV.  The  corporation  holds  the  property  and  assets  as  a  trustee  for 
the  members  (Hotel  Co.  v.  Wade,  97  U.  S.  13),  and  if  the  corporation 
will  not  sue,  the  members  can  (Butts  v.  Wood,  37  N.  Y.  317  ;  Greaves 
v.  Gouge,  69  N.  Y.  154). 

.  Robert  L.  Fowler  and  Victor  Morawetz,  for  various  defendants. 

[Omitting  part  of  argument] 

II.  This  is  not  an  action  for  a  wrong  to  the  plaintiff.  If  the  defend*- 
ants  had  deceived  the  plaintiff,  or  caused  him  any  injury  directly,  he 
would  be  entitled  to  recover  the  amount  of  damages  he  had  suffered  in 

1  The  case,  as  here  given,  is  made  up  partly  from  the  report  in  14  Abbott,  and 
partly  from  the  report  in  50  New  York  Superior  Court,  29.  The  statement  is  re- 
written, and  portions  of  the  argument  are  omitted.  — ED. 


PAESONS   V.   HAYES.  315 

an  action  of  a  legal  nature.  No  such  claim  is  made.  The  complaint 
is  framed  as  a  proceeding  on  behalf  of  the  corporation  for  a  wrong 
against  the  corporation.  Plaintiff  alleges  that  the  stock  which  he  pur- 
chased was  issued  as  paid  up  stock,  and  represented  to  the  world  as 
paid  up  stock  03-  the  board  of  directors.  But  he  does  not  state  that 
lie  was  deceived  by  this  representation,  or  that  it  caused  him  any 
injury.  The  form  of  the  complaint  is  that  of  the  ordinary  stock- 
holders' bill  known  in  chancery  practice.  It  is  fundamental  that  a 
suit  of  this  character  cannot  be  maintained  by  a  stockholder,  unless 
the  corporation  itself  would  be  entitled  to  recover  in  an  action  for  the  */ 
wrongs  complained  of.  The  complaint  does  not  show  that  the  cor- 
poration ever  had  a  cause  of  action  against  the  individual  defendants. 
It  was  deprived  of  nothing  of  value  by  the  issue  of  its  shares.  Shares 
of  stock  are  merely  the  proportionate  interests  of  the  holders  in  the 
whole  corporate  concern,  and  their  value  depends  upon  the  real  capital 
which  the  compan}'  owns.  The  whole  and  the  sum  of  its  parts  must 
be  equal.  In  the  present  case  the  purchaser  took  back  what  he  gave 
in  another  form.  The  corporation  was  not  realh-  in  existence  until  the 
shares  had  been  issued,  although  the  statute  provides  that  it  shall  be 
deemed  in  existence  for  certain  purposes  from  the  filing  of  the  certifi- 
cate of  incorporation.  The  existence  of  a  corporation  before  its  shares  ^ 
have  been  issued  is  a  fiction.  The  corporation  could  not  be  injured  by 
the  act  which  brought  it  into  being. 

IV.  If  a  subsequent  bonafide  purchaser  was  deceived  by  the  un- 
authorized and  untrue  certificates  issued  by   the  directors,  he  would 
have  his  remedy  for  damages.     Creditors  also  would  be   entitled  to 
redress  to  the  extent  of  their  claims.     But  the  corporation  as  a  body 
could  not  complain. 

V.  The  law  recognizes  the  fact  that  a  corporation  and  the  whole 
number  of  its  stockholders  are  identical,  —  that  the  one  represents  and 
is  made  up  of  the  other.     It  is  upon  this  ground  alone  that  the  plaintiff 
has  any  standing  in  this  court.     A  corporation  cannot  complain  even 
on  account  of  a  breach  of  trust,  or  a  direct  misapplication  of  the  cor- 
porate funds  by  the  directors,  after  the  acts  complained  of  have  been 
acquiesced  in  and  ratified  by  the  whole  bod}"  of  shareholders.     If  the 
corporation  itself  cannot   complain    under  these  circumstances,  it  is 
plain  that  a  stockholder  cannot  complain  on  its  behalf  (Hotd  Co.  v. 
Wade,  97   U.  S.  13  ;  Kent  v.  Quicksilver  Mining  Co.,  78  JV.  F.  159, 
184;  Scott  v.  Depeyster,  1  Edw.  Ch.  513,  536;    Watt's  Appeal,  78 
Pa.  St.   370;    Terry  v.  Eagle  Lock  Co.,  47  Conn.  141 ;  Kitchen  v. 
St.  Louis,  &c.  Ry.  Co.,  69  Mo.  224,  264  ;    Samuel  v.  Holladay,    1 
Wooho.  400;  ZabrisJcie  v.  Hackensack,  <&c.  R.  R.  Co.,  18  N.J.  Eq. 
178,  194;  Phosphate  of  Lime   Co.  v.   Green,  L.  R.,  1   C.  P.  43; 
Ffooks  v.  Southwestern  Ry.  Co.,  I  Sm.  &  G.  142,  164;   Graham  v. 
Birkenhead,  &c.  Ry.  Co.,  2  McM.  &  G.  146). 


316  PARSONS   V.   HAYES. 

VII.  There  is  a  distinction  between  a  suit  by  a  shareholder  for  relief 
on  account  of  a  wrong  committed  before  he  purchased  his  shares,  and 
a  suit  brought  to  restrain  the  performance  of  an  unauthorized  and  void 
contract,  which  had  been  previously  entered  into. 

SEDGWICK  C.  J.  [After  deciding  that,  upon  this  appeal,  it  is  proper 
to  examine  the  complaint  to  see  if  it  contains  any  cause  of  action.] 
The  learned  counsel  for  the  appellant  states  the  claim  of  the  complaint 
as  follows.  The  plaintiff  sues  on  behalf  of  himself  and  all  other 
stockholders  of  the  corporation  defendant,  alleging  that  the  individual 
defendants,  then  being  trustees  of  the  said  corporation,  immediately 
after  the  organization  thereof,  by  agreement  with  one  Catlow,  issued 
to  him  the  whole  capital  stock  of  said  corporation,  viz.  $2,000,000,  in 
exchange  for  property  worth  not  to  exceed  $150,000.  That  90,000 
shares  of  the  stock  were  turned  over  to  the  defendant  Ha3'es  and  his 
associates,  and  20,000  shares  to  the  defendant  corporation  by  said 
Catlow,  without  payment  therefor,  in  pursuance  of  the  real  agreement 
between  the  parties  for  the  purchase  of  property  and  the  issue  of  stock. 
That  the  individual  defendants  knew,  or  could  have  known,  the  value 
of  the  property,  and  that  a  portion  of  the  stock  was  to  be  turned  over 
as  stated.  That  the  defendants,  trustees,  represented  the  stock  as 
full  paid,  and  that  the  stock  has  been  sold  as  full  paid  to  innocent  pur- 
chasers, including  the  plaintiff.  That  the  plaintiff  purchased  his  stock 
regularly  in  the  open  market,  relying  upon  such  representations,  and 
received  regular  certificates,  and  that  the  stock  was  regularly  trans- 
ferred to  him  on  the  books  of  the  corporation.  That  the  individual 
defendants  have  received  large  gains  and  profits  from  the  sale  of  that 
portion  of  the  stock  turned  over  to  them.  That  the  individual  defend- 
ants have  sold  the  stock  turned  over  to  the  defendant  corporation,  or 
a  large  portion  of  it,  at  $1  per  share.  That  the  individual  defendants 
have  not  accounted  for  the  difference  between  the  value  of  the  stock 
and  the  amount  of  property  received  (except  as  to  the  $1  a  share  re- 
ceived from  the  treasur}'  stock),  nor  for  the  gains  and  profits  received 
b}"  them  from  the  sale  of  the  stock  turned  over  to  them.  That  the 
corporation  defendant  is  still  under  the  control  of  the  individual 
defendants. 

The  defendants  among  other  defenses  pleaded  that  plaintiff  pur- 
chased his  stock,  knowing  the  facts  attending  the  transaction  set  out 
in  the  complaint* 

By  the  terms  of  the  complaint  the  plaintiff  sues  for  himself  and 
"  all  other  stockholders  of  the  defendant  company  who  may  choose  to 
come  in  and  avail  themselves  of  the  benefit  of  the  actions."  The  plain- 
tiff is  excused  from  naming  all  of  these  stockholders,  on  account  of  the 
inconvenience  of  making  a  great  number  of  persons  parties ;  but  in 
legal  contemplation,  all  of  them  are  parties  plaintiff,  and  alt  of  them 
are  in  like  case  with  the  plaintiff  named.  These  persons  are  stock- 
j  holders,  as  it  is  called,  having  become  so  b}'  transfer  of  shares  from 
'  Catlow  remotely  or  directly,  and  Catlow  himself,  if  he  have  not  trans- 


PARSONS   V.  HAYES.  317 

ferred  all  his  stock ;  unless  as  to  Catlow,  he  is  not  to  be  deemed  a 
party  because  he  is  not  in  like  case  with  the  plaintiff. 

It  will  be  convenient  first  to  inquire,  if  Catlow  as  a  plaintiff  could 
have  maintained  such  an  action.  The  facts  would  have  been,  that 
previous  to  the  impeached  issue  of  certificates  of  shares,  the  corporation 
would  have  been  in  existence  by  virtue  of  the  statute  which  declares 
(Laws  1848  c.  40,  §  2,  3  Edm.  733)  that  when  the  certificate  shall  have 
been  filed,  the  persons  who  shall  have  signed  and  acknowledged  the 
same  and  their  successors  shall  be  a  bod}'  politic  and  corporate  in  fact 
and  in  name,  by  the  name  stated  in  such  certificate  and  by  that  name 
have  succession  and  shall  be  capable  of  suing  and  being  sued  and  they 
and  their  successors  ma}"  have  a  common  seal  and  they  shall  by  their 
corporate  name,  be  capable  in  law  of  purchasing,  etc.,  property. 

There  was  no  stock  or  capital  and  there  could  be  none  excepting  by 
third  persons  paying  money  or  property  for  certificates  of  shares  of  the  ^ 
capital  issued  to  them.  There  were  then,  of  course,  no  shareholders. 
Catlow  and  the  trustees  of  the  corporation,  who,  by  the  statute  were 
the  corporation,  made  an  agreement  that  was  carried  out,  that  certifi- 
cates should  be  issued  to  him  by  the  trustees  which  should  represent 
that  he  was  the  owner  of  the  whole  number  of  shares  of  the  capital 
stock,  or  two  hundred  thousand  shares  of  the  stock  which  by  the 
certificate  of  incorporation  was  to  be  $2,000,000,  and  he  should  convey 
to  the  company  mining  claims  and  property,  which  in  fact  had  no 
greater  value  than  $150,000,  as  the  parties  to  the  transaction  knew. 
In  substance  Catlow  subscribed  for  the  whole  of  the  shares,  agreeing 
-to_pay  therefor,  only  property  of  the  value  named. 

The  statute  declared  that  only  money  should  be  taken  by  the  trustees 
to  the  nominal  amount  of  the  shares  issued,  or  property,  the  actual 
value  of  which  was  equal,  to  that  nominal  amount.     The  agreement 
was  unlawful  and  its  execution  could  not  have  been  enforced  by  either_ 
party  to  it.     It  was  in  facTmade  and  executed  to  evade  the  statute. 

It  was  a  part  of  the  agreement  that  upon  the  certificates  being  issued 
to  Catlow  he  should  transfer  to  each  of  the  trustees  certain  shares. 
The  trustees  received  these  shares  from  Catlow  and  afterwards  sold 
them  for  large  sums  of  money  for  their  own  benefit.  Upon  the  certifi- 
cates being  issued  to  Catlow  he  would  become  a  shareholder.  At  least_ 
it  is  necessary  to  suppose,  that  although  the  transaction  was  forbidden 
"By  law,jrejrii;  was  in  facfclone,  and  bylt,  Catlow  became  a  shareholder. 
Upon  the  supposition  that  Catlow,  being  the  owner  of  all  the  shares 
excepting  such  as  he  had  transferred  to  the  trustees,  brought  his 
action,  he  would  claim  that  he  had  a  right  to  demand  that  the  company 
should  bring  an  action  against  the  trustees  to  compel  them  to  pay  the 
company  money  sufficient  with  the  value  of  the  mining  property  to  — • 
amount  to  $2,000,000  which  was  by  the  certificate  to  be  the  capital, 
and  also  pa}"  to  the  company  the  amounts  of  money  for  which  they  had 
sold  the  shares  he  had  transferred  to  them. 

As  the  action  would  be  by  him  declared  to  be  for  his  benefit,  it 


318  PARSONS   V.   HAYES. 

would  ordinarily  be  necessary  to  say  no  more,  than  that  he  was  not 
entitled  to  be  benefited,  through  claiming  an  interest  in  what  may  be 
called  damages  for  an  act  in  which  he  had  taken  part,  indeed  which 
he  had  promoted.  But  certain  positions  have  been  taken  for  the 
present  plaintiff,  which  would  apply  to  Catlow  and  those  may  be  now 
examined. 

It  is  said  for  the  present  plaintiff  that  the  transaction  was  unlawful 
and  invalid,  and  cannot  be  made  lawful  or  be  validated.  If  that  be  so, 
it  would  be  true  in  the  case  of  Catlow.  It  is  nevertheless  also  true, 
that  there  is  nothing  unlawful  or  invalid,  in  the  parties  to  an  unlawful 
arrangement,  being  without  a  right  to  share  in  damages  (to  use  a 
convenient  word)  which  have  flowed  from  the  unlawful  act. 

There  is  at  this  point  a  distinction  taken  for  the  plaintiff,  between 
the  right  of  the  corporation  to  damages  and  the  right  of  a  party  con- 
senting to  the  wrong,  being  entitled  to  damages.  It  is  said  that  a 
corporation  is  an  artificial  person,  a  legal  entity  entirely  different  and. 
distinct  from  the  persons  of  which  it  is  composed  and  the  corporation 
as  a  distinct  person  may  be  injured  by  one  or  all  of  its  members,  and 
in  either  case  has  a  right  of  action.  Without  stopping  to  ascertain 
the  real  meaning  of  this  definition  of  a  corporation,  and  assuming  the 
other  proposition  to  be  correct,  it  is  further  tp^  be  ascertained  if  the 
corporation  has  been  injured  in  the  transaction  or  has  suffered  damage. 
"TEtTinjury  or  damage  in  one  direction  would  be  the  consequence  of 
issuing  certificates  by  an  invalid  act  that  on  the  assumption  of  the 
plaintiff's  argument  is  incapable  of  ratification.  If  this  be  a  void  act, 
then  it  would  be  necessary  to  say,  that  the  certificates  issued  were 
void  and  the  corporation  could  proceed  to  issue  certificates  of  shares  in 
a  legal  manner.  But  such  a  view  would  disclose  that  Catlow  or  the 
plaintiff  would  not  be  a  shareholder  and  therefore  not  entitled  to  bring 
such  an  action  as  the  present. 

Such  an  injury,  of  course,  is  not  claimed,  but  it  is  claimed  that  the 
injury  was  the  trustees  issuing  for  property  of  small  value  certificates 
to  the  nominal_amount  of  $2,000,000,  whereas  it  was  the  dut}T  of  the 
trustees  not  to  issue  them  exceut  for  $2,000,000^  The  complaint  does 
not  allege  nor  can  it  be  presumed  that  if  the  certificates  had  been 
properly  dealt  with,  any  more  could  have  been  procured  for  them,  than 
was  in  fact,  and  therefore  itjjoes  not  ap_p_earj,bat  any  pecuniary  damage, 
was  suffered.  Or,  in  other  words,  it  doesjiQJb-afUiear  that  if  the  trustees 
had  performed  their  dut3',  of  not  issuing  except  for  equivalent  value, 
that  the  corporation  would  have  had  more  capital  than  now. 

Excepting  these  considerations  it  ma}'  be  supposed  that  there  was 
damage  to  the  company  from  the  trustees'  acts.  Was  there  any  injury 
under  the  facts?  Itjs.-true*  that  the  corporation  is  something  more 
than  its  trustees  and  shareholders  ;  but  its  property,  chattels,  money  or 
choscs  in  action,  it  owns  not  in  its  own  interest  but  for  the  pecuniary 
benefit  of  the  natural  persons  connected  with  it.  It  would  be  impossible 
to  look  upon  the  property  rights  of  a  corporation  merely  having  regard 


PARSONS  V.   HAYES.  319 

to  its  being  an  ideal  creature.  It  acts  through  natural  persons.  It 
acts  for  the  benefit  of  natural  persons.  In  truth  natural  persons  com- 
pose it.  The  statute  under  which  it  was  formed  says  this.  The 
trustees  who  are  trustees  under  the  statute  for  the  corporation  are 
ibe  trustees  Tor  the  snaretioLclers7 In  Karnes  v.  Rochester  &  Genesee 
Valley  K.  K.  (4  Abb.  JJr.  JV.  JS.  107),  the  court  said,  "  The  directors 
stand  in  the  relation  of  trustees  to  stockholders  and  between  them 
exists  the  relation  of  trustee  and  cestui  que  trust."  As  for  this  Butts 
v.  Wood  (38  B.  181,  afterwards  affirmed,  37  N.  Y.  317),  was  quoted, 
it  must  have  been  said  upon  an  identification  of  the  stockholders  and 
the  corporation.  The  same  case  said  (p.  110),  "The  corporation  does 
not  stand  in  any  fiduciary  relation  to  its  stockholders.  Such  a  relation 
between  the  corporation  and  its  corporators,  is  shown  in  a  well  con- 
sidered opinion  by  Vice-Chancellor  McCouN,  in  Verplanck  v.  Mercantile 
Ins.  Co.  (1  Edw.  Ch.  87),  to  be  impossible.  The  stockholders  are  in 
no  sense  creditors  of  the  corporation,  nor  are  they  in  the  situation 
of  partners.  They  are  constituent  parts  of  the  corporation."  The 
language  of  Vice-Chancellor  McCouN,  in  Verplanck  v.  Mercantile  Ins. 
Co.  (1  Edw.  Ch.  87)  was,  "The  corporation  is  merely  the  creature  of 
the  law,  a  political  body,  not  a  natural  bod}*,  made  up  of  the~cotapaefr 
entered  into  by  the  stockholders,  each  of  whom  becomes  a  corporator 
identified  with  and  forming  a  constituent  part  of  the  corporate  body, 
and  therefore  when  we  speak  of  stockholders  and  the  incorporated 
company  of  which  they  are  the  components,  we  refer  to  one  and  the 
same  collection  of  persons.  HTJW  then,  can  the  relation  of  trustees  and 
cestui  que  trust  exist,  for  such  a  relation  requires  separate  and  distinct  ./ 
persons  or  separate  and  distinct  bodies  to  constitute  it."  This  case 
afterwards  affirms  that  the  directors  are  the  agents  and  trustees  of  the 
corporation  or  stockholders. 

In  Railway  Company  v.  Allenton  (18  Wall.  234),  the  charter  declared 
that  all  the  corporate  powers  of  the  corporations  shall  be  vested  in  and 
exercised  by  a  board  of  directors,  etc.,  and  it  also  declared  that  the 
capital  stock  of  the  corporation  may  be  increased  from  time  to  time  at 
the  pleasure  of  said  corporation.  The  court  held  that  the  capital  could 
not  be  increased  b}*  the  directors  without  the  consent  of  the  share- 
holders. The  opinion  said  that  a  corporation  like  a  partnership  is  an 
association  of  natural  persons,  and  that  fundamental  changes  of  cor- 
porate purposes  cannot  be  made  without  the  express  or  implied  consent 
of  the  members. 

Again,  considering  that  the  fundamental  position,  is  that  Catlow 
became  in  fact,  shareholder  to  the  amount  of  all  the  capital  stock,  the 
following  was  the  relation  between  the  parties.  The  corporation  was 
the  holder  of  the  legal  title  of  the  property  of  the  corporation,  subject  / 
to  corporate  uses.  Excepting  this  legal  title  for  corporate  uses,  the 
shareholders  were  the  parties  interested  in  the  property  in  fact,  owning 
all  of  it,  excepting  the  legal  title,  which  as  against  them  could  be  used 
for  corporate  purposes.  The  trustees  were  the  statutory  corporation- 


320  PARSONS   V.   HAYES. 

The  shareholders  were  members  or  a  part  of  the  corporation.  The 
corporation  held  the  legal  title,  for  the  pecuniary  benefit  of  the  share- 
holders, having  no  beneficial  or  pecuniary  benefit  in  it. 

On  the  claim  for  the  plaintiff,  the  thing  possessed  is  the  right  of  the 

corporation  to  have  an  action  against  its  trustees,  for  damages  for  their 

acts  which  it  is  claimed  were  wrongful  to  the  corporation.     This  right 

was,  if  it  existed,  held  b}-  the  same  tenure  and  for  the  same  purposes 

\  that  other  property  would  be  held.     The  corporation  would  have  a  bare 

\  title  to  it  for  the  beneficial  use  of  shareholders.     It  seems  to  be  evident, 

that  the  corporation  could  not  claim  as  damage  to  its  interest  what 

would  be  damage  to  the  beneficial  interest  where  the  owners  of  the 

latter  had  consented  to  the  so  called  injury. 

In  fact,  however,  the  case  is  a  little  different  in  point  of  circumstance, 
although  not  essentially.  The  beneficial  owner  or  shareholder  having 
in  advance  of  the  occurrence,  which  but  for  their  participation  would 
have  created  a  cause  of  action  in  the  corporation,  promoted  it  and  then 
participated  in  it,  the  conduct  of  the  trustees  never  made  a  cause 
of  action,  because  that  conduct  was  not  wrongful  as  respects  the 
shareholder. 

The  principles  that  have  now  been  used  are  established  by  Scott  v. 
De  Peyster  (1  Edw.  Ch.  513)  ;  Hotel  Co.  v.  Wade  (97  V.  S.  13)  ; 
Kent  v.  Quicksilver  Mining  Co.  (78  N.  Y.  159).  It  is  not  necessary 
to  give  the  reasoning  of  these  cases.  They  are  applicable  here.  It  is 
supposed  that  in  the  last  case  there  is  a  difference,  in  that  acquiescence 
of  shareholders  was  held  to  estop  them  in  favor  of  innocent  third  parties. 
But  it  must  be  considered  that  after  the  power  to  ratify  or  acquiesce  is 
held  to  exist,  the  same  principle  would  act  in  favor  of  third  parties 
although  not  innocent,  against  whom  damages  for  the  act  ratified  were 
claimed. 

It  seems  to  be  clear  that  Catlow  could  not  maintain  an  action  like 
this,  first  because  he  could  not  claim  that  the  corporation  should  bring 
an  action  for  his  benefit  on  account  of  a  transaction  which  he  took  part 
in,  and  second  because  the  corporation  would  have  no  cause  of  action 
or  right  to  damages. 

~~mh'e  "second  proposition  be  true,  then  it  necessarily  follows  there 
never  having  been  any  cause  of  action,  or  the  right  to  damages  having 
never  accrued  the  claim  cannot  be  revived  in  the  future  in  favor  of  any 
person  whether  or  not  a  transferee  of  shares  from  Catlow. 

The  plaintiff,  however,  because  he  claims  through  a  transfer  from 
Catlow  cannot  bring  an  action  which  Catlow  could  not  have  brought 
upon  this  case. 

In  Mann  v.  Currie  (2  J5.-298),  the  court  said  of  the  defendant  that 
"  if  he  became  a  stockholder  by  transfer  to  him  of  the  stock  of  an 
original  subscriber,  he  at  once  adopted  his  contract  with  the  company 
and  became  substituted  in  his  place,  both  as  regards  his  rights  and 
liabilities."  This  was  said  in  relation  to  the  obligations  of  the  defend- 
ant to  fulfil  the  terms  of  the  original  subscription  of  his  assignor. 


PARSONS   V.   HAYES.  321 

The  reasoning  that  tends  to  the  application  of  this  conclusion  in  this 
case  is  just  and  seems  to  be  clear.  The  shares  which  the  plaintiff  holds 
came  to  him  through  a  certificate  which  was  issued  upon  a  particular 
arrangement  under  which  the  plaintiff  claims,  necessarily  admitting  it 
to  have  been  effective.  One  feature  of  that  arrangement  was  that  the 
certificate  should  be  issued  to  Catlow  as  his  property  for  a  consideration 
which  the  plaintiff  claims  was  injurious  to  the  corporation.  As  the 
plaintiff  claims  that  the  consideration  although  unlawful  was  sufficient 
to  give  a  title  which  he  maintains,  he  must  abide"  by  It  as~a  fact  and 
there  fuiu  in  all"  its  consequences.  It  is  not  competent  for  him  to  take 
purl  ami  rujyut  part  as  11  was  one  transaction.  Counsel  for  the  defend- 
ant in  a  later  case  before  the  general  term  cited  on  this  point :  Hooker 
v.  London  Railway  Co.  (7  Ins.  368)  ;  the  opinions  in  Williams  v. 
Telegraph  Co.  (48  Super.  Ct.  349)  ;  Mech.  Bank  v.  N.  Y.  &  N.  H.  R. 
R.  Co.  (13  J\T.  T.  599)  ;  Hughes  v.  Copper  Co.  (72  N.  Y.  207). 

The  claim  that  the  corporation  had  a  right  to  recover  the  amounts  of 
profits  made  by  the  trustees  for  themselves  individually  in  a  transaction 
which  they  were  conducting  for  the  corporation  has  not  yet  been  noticed. 
What  has  been  already  said  is  to  be  applied  to  this  claim.  There  is  no 
doubt  of  this  general  rule  that  trustees  are  liable  to  respond  to  those 
for  whom  the,)-  act  for  any  profits  made  by  them  individually,  but  this 
is  limited  by  the  proposition  in  the  language  of  the  court  of  appeals 
(Moody  v.  Smith,  70  JV.  Y.  598),  "a  principal  may  give  an  agent 
express  power  to  act  in  the  business  of  the  principal,  so  that  the  agent 
ma}'  reap  a  benefit,  and  in  such  case  the  principal  is  bound  by  the  acts 
of  their  agent."  It  has  been  already  considered  that  the  shareholders 
were  the  real  parties  interested  and  that  ihcir  consent  would  bind  the 
corporation,  and  it  follows  that  the  corporation  would  not  recover  from 
the  trustees,  wnat  shareholders  had  arranged  they  should  individually 
receive. 

This  opinion  has  had  in  regard  solely  the  right  of  a  member  of  a 
corporation  to  require  that  corporation  to  assert  for  his  benefit,  a  claim 
for  damages  in  which  he  may  share,  when  in  reality  he  stands  in  the 
shoes  of  one  who  took  part  in  the  transaction  complained  of.  His 
want  of  riafotto  maintain  such  an  action  does  not  affect  any  claim  he 
may  have  for  individual  damage  from  misrepresentation  by  the  corpora- 
tion or  third  parties,  nor  does  it  affect  the  claim  of  creditors  or  the 
liapiiity  of  the  corporation  or  its  trustees  to  an  action  by  the  attorney 
gemefair^^  Judgment  affirmed,  with  dbsts. 

— TKUAX,  J.,  dissents. 

INGRAHAM,  J.  —  [Concurring.]  —  I  concur  with  the  Chief  Judge  on 
the  ground  stated  lay  him  that  as  Catlow  was  a  party  to  the  agreement 
under  which  the  stock  was  issued,  and  received  the  benefit  of  such 
agreement,  he  would  not  be  entitled  to  bring  such  an  action  as  the 
present  one,  and  that  plaintiff's  title  to  the  stock  he  owns  and  on  which 
he  brings  his  action,  having  come  through  Catlow,  he  can  have  no 
greater  right  as  stockholder  than  his  assignor  had. 

21 


322  RE  SEVERN   AND   WYE   AND   SEVERN   BRIDGE   R.   CO. 


CHAPTER  IX. 
DIVIDENDS.    PREFERRED  STOCK. 


RE  SEVERN  AND  WYE  AND   SEVERN   BRIDGE   R.  CO. 

1896.     74  Law  Times,  New  Series,  219. 

(Before  ROMER,  J.,  sitting  for  WILLIAMS,  J.) 
SUMMONS. 

The  Severn  and  Wye  Railway  and  Canal  Company  (hereinafter 
called  the  original  company)  was  incorporated  by  Act  of  Parliament 
in  1809,  and  under  an  Act  passed  in  1879  (42  &  43  Viet.  c.  clxiii.) 
this  company  and  the  Severn  Bridge  Railway  Company  were  amalga- 
mated, and  the  shareholders  were  united  into  one  company  and  incor- 
porated under  the  name  of  the  Severn  and  Wye  and  Severn  Bridge 
Railway  Company. 

By  the  last-mentioned  Act  it  was  provided  that  the  capital  of  the  two 
companies  should  after  the  amalgamation  be  kept  distinct. 

The  original  company  was  prosperous  in  its  early  daj's,  and  paid 
dividends  half-yearly  on  the  production  to  its  bankers  of  a  notice  issued 
by  the  secretary  to  the  shareholders  and  on  their  signing  a  special 
form  of  receipt. 

Under  the  authority  of  another  Act,  passed  in  1894  (57  &  58  Viet. 
c.  clxxxix.),  the  amalgamated  company  sold  its  undertaking  to  the 
Great  Western  and  Midland  Railway  Companies.  Sect.  4  of  the  Act 
provided  that  the  amalgamated  company  should  be  wound  up  as  if  it 
were  a  company  registered  under  the  Companies  Acts  1862  to  1890, 
and  had  on  the  day  of  the  passing  of  the  Act  passed  a  special  resolution 
for  winding  up  voluntarily. 

After  providing  for  payments  required  by  sect.  7  of  the  Act  of  1894 
it  was  anticipated  that  there  would  be  a  surplus  in  the  hands  of  the 
liquidators  of  £2000,  inclusive  of  £1238  representing  unclaimed  divi- 
dends declared  by  the  original  company  prior  to  March,  1878,  and  this 
surplus  was,  under  a  proviso  to  sect.  7  of  the  Act,  to  be  divided  amongst 
the  preference  and  ordinary  shareholders  of  the  amalgamated  company 
in  certain  proportions. 

Prior  to  the  amalgamation  the  dividends  appeared  in  a  dividend 
ledger  of  the  original  company,  and  this  practice  was  continued  in  the 


RE  SEVERN  AND  WYE  AND  SEVERN  BRIDGE  R.  CO.     323 

same  book  after  the  amalgamation  and  down  to  the  30th  June,  1885, 
each  shareholder  having  an  account  in  the  ledger.  In  December,  1895, 
these  were  written  off  the  dividend  ledger  and  transferred  to  the  general 
ledger  to  an  account  headed  ''Unpaid  dividends,"  the  whole  being 
aggregated,  and  that  account  had  ever  since  remained  in  the  general 
ledger.  In  the  half-3*early  published  accounts  down  to  June,  1885, 
these  dividends  were  entered  under  one  item  of  "Unpaid  dividends 
and  interest,"  but  in  subsequent  half-yearly  published  accounts  they 
were  included  in  an  item  called  "  Sundry  outstanding  accounts."  The 
company  had  in  some  cases  paid  dividends  which  had  been  unclaimed 
for  over  six  years.  The  £1238  was  made  up  entirety  of  unclaimed 
dividends  on  stock  which  represented  shares  in  the  original  company, 
such  dividends  haying_all  beejujeclared  more  than  twenty  years  ago. 

This  was  a  summons  taken  out  by  the  liquidators  for  the  determina- 
tion by  the  court  of  the  question  whether  two  suras  of  £753  14s.  3d. 
and  £349  4s.  3d.  representing  unclaimed  dividends  which  accrued  upon 
the  stocks  respectively  held  by  William  Bobbins  and  John  Sherborne 
prior  to  the  }-ear  1874,  and  which  remained  in  the  hands  of  the  liqui- 
dators should  be  paid  to  their  respective  legal  personal  representatives, 
or  whether  the}7  ought  to  be  treated  as  part  of  the  general  assets  of  the 
company  available  for  distribution  as  such  amongst  the  preference  and 
ordinary  stockholders  as  provided  b}'  sect.  7  of  the  Act  of  1894. 

F.  Thompson  for  the  liquidators. 

Vernon  R.  Smith,  Q.  C.,  and  Rowden  for  the  stockholders  of  the  amal- 
gamated compan}*.  — The  claims  of  the  legal  representatives  of  Bobbins 
and  Sherborne  were  barred  by  the  Statute  of  Limitations,  if  not  at  the 
expiration  of  six  years  from  the  time  of  the  declaration  of  the  dividends, 
at  all  events  at  the  expiration  of  twenty  years  :  (Lindley  on  Companies 
(5th  edit.),  p.  437).  As  soon  as  the  dividends  were  declared  an  action 
la}'  to  recover  them.  From  that  time  the  company  became  a  simple 
contract  debtor  to  the  shareholders  for  the  amount  of  the  dividends. 
The  entries  in  the  books  of  the  company  were  entirety  consistent  with 
the  relationship  of  debtor  and  creditor,  and  cannot  be  regarded  as  a 
sufficient  acknowledgment  to  take  the  case  out  of  the  statute :  Bush 
v.  Martin,  9  L.  T.  Bep.  510 ;  2  H.  &  C.  811.  They  also  referred  to 
the  Companies  Act  1862,  s.  16. 

Dibdin  for  the  personal  representatives  of  Bobbins.  —  The  company 
held  the  dividends  as  trustees  for  the  shareholders,  and  therefore  no 
question  on  the  Statute  of  Limitations  arises :  Smith  v.  Cork  and 
Bandon  Railway  Company,  Ir.  Bep.  5  Eq.  65 ;  Gouraud  v.  Edison 
Oower  Bell  Telephone  Company  of  Europe  Limited,  59  L.  T.  Bep. 
813 ;  57  L.  J.  489,  Ch. ;  Re  Lands  Allotment  Company,  70  L.  T. 
Bep.  286  ;  (1894)  1  Ch.  616.  The  company  was  in  a  position  analogous 
to  that  of  a  partnership.  In  the  case  of  a  claim  by  one  partner  against 
the  other  time  does  not  commence  to  run  under  the  statute  until  after 
the  dissolution  of  the  partnership  :  Penny  v.  Pickwick,  16  Beav.  246  ; 
Barton  v.  North  Staffordshire  Railway  Company,  58  L.  T.  Bep.  549  ; 


324  RE   SEVERN   AND   WYE   AND   SEVERN   BRIDGE   R.   CO. 

38  Ch.  Div.  458.  He  also  referred  to  Companies  Act  1862,  Table  A, 
el.  76  ;  Lindley  on  Partnership,  6th  edit.,  pp.  511-2  ;  Lindley  on  Com- 
panies, 5th  edit.,  p.  401. 

TF.  M.  Cann,  for  the  personal  representatives  of  Sherborne,  adopted 
the  same  argument. 

Vernon  M.  Smith  replied.  Cur.  adv.  vult. 

March  9.  —  ROMER,  J.,  delivered  the  following  written  judgment : 
The  liquidators  have  raised,  as  they  were  entitled  to  do,  the  defence  of 
the  Statute  of  Limitations  in  answer  to  the  claims  for  unpaid  dividends, 
which  I  have  to  consider.  That  defence  is,  in  my  opinion,  fatal  to  the 
claims.  The  dividends  in  question  were  declared  and  became  payable 
more  than  twenty  years  before  the  present  claims  were  made,  and 
constituted  debts  duejbo  the  shareholders  for  which  they  could  have 

/sued  at  law,  as  was  pointed  out  b}-  Lindley,  L.  J.,  in  the  passage  in 
his  treatise  on  company  law  (p.  437),  which  was  cited  in  the  argument 
before  me.  Presumably,  therefore,  the  Statute  of  Limitations  began 
to  run  in  favor  of  the  company  from  the  time  the  dividends  became 
payable. 

But  the  claimants  contend  that  the  statute  never  began  to  run  against 
them,  on  two  grounds.  In  the  first  place,  they  contend  that  the  com- 
pany was  in  the  position  of  a  trustee  for  them  of  these  dividends.  In 
my  judgment,  this  was  not  so.  The  declaration  that  the  dividend  was 
pajable  did  not  make  the  company  a  t.mat-.PP|  ^f  it  for  the  shareholders. 
Nor  did  the  company  or  its  successor,  the  amalgamated  company 
constituted  by  the  Act  of  1879,  ever  constitute  itself  a  trustee.  In  the 
books  of  the  two  companies  an  account  was  kept  as  of  a  liabilit}"  in 
respect  of  the  unclaimed  dividends.  But  the  entry  in  the  books  of  a 
debtor  of  a  liability  to  a  creditor  does  not  constitute  the  debtor  a 
trustee  of  the  amount  of  that  liabilit}-  for  the  creditor.  There  was  no 
setting  apart  of  an}-  special  part  of  the.  assets  of  the  companies  as. being 
or  representing  these  dividends,  nor  was  there  any  notice  given  to  the 
shareholders,  nor  any  step  taken  by  the  companies,,  which,  so  far  as  I 
can  see,  could  be  treated  as  putting  the  companies  in  the  position  of 
trustees  or  as  preventing  the  Statute  of  Limitations  from  running  in 
their  favor. 

In  the  next  place,  the  claimants  contend  that  the  statute  did  not  run, 
on  the  ground  that  the  shareholders  and  the  company  were  in  the 
position  of  partners,  or  in  an  analogous  position.  In  my  opinion  that 
contention  is  untenable.  Nor  can  I  see  that  the  reasons  upon  which 
the  rule  is  founded,  that  the  Statute  of  Limitations  does  not  run  in 
respect  of  a  claim  between  partners  during  the  continuance  of  the 
partnership,  apply  to  a  claim  for  unpaid  dividends  between  a  share- 
holder of  an  incorporated  company  and  the  compan}'.  The  case  of 
Penny  v.  Pickwick  (ubi  swp.),  relied  on  by  the  claimants,  was  one  of 
a  simple  partnership  which  Lord  (then  Sir  John)  Romilly  held  under 
the  circumstances  was  a  continuing  partnei'ship.  In  the  case  of  Barton 
\.  North  Staffordshire  Railway  Company  (ubi  sup.)  Lord  Justice 


LE   ROY   v.   GLOBE   INS.   CO.  325 

(then  Mr.  Justice)  Kay  decided  that  where  persons  entitled  as  stock- 
holders in  a  railway  company  were  suing  to  establish  their  position  as 
such,  their  cause  of  action  only  arose  when  the  company  first  refused 
to  treat  them  as  stockholders,  and  that  the  Statute  of  Limitations  did 
not  commence  to  run  before  that  refusal.  He  did  not  say  that  the  case 
was,  in  fact,  analogous  to  a  claim  between  partners,  but  only  that,  if 
the  analogy  were  applicable,  it  would  support  his  view,  because  the 
statute  only  runs  against  a  partner  from  the  time  of  his  exclusion. 

Nor  is  the  claimants'  contention  supported  by  the  fact  that,  for 
many  purposes,  the  directors  of  the  company  are  held  to  be  in  a 
fiduciary  position  with  regard  to  their  shareholders  as  shown  by  the 
cases,  referred  to  by  the  claimants,  of  Gouraud\.  Edison  Gower  Bell 
Telephone  Company  of  Europe  (iibi  sup.)  and  Re  Lands  Allotment 
Company  (ubi  sup.).  For  these  reasons,  in  my  opinion,  the  claims 
fail.  I  should  add  that,  though  I  cannot  find  any  decision  of  the 
English  courts  on  the  point  I  have  had  to  consider,  the  view  I  am 
taking  was  expressed  in  the  Irish  Court  of  Appeal  by  Christian,  L.  J., 
in  the  case  of  Smith  v.  Cork  and  Bandon  Railway  Company 
(iibi  sup.). 


LE  ROY  v.  GLOBE  INS.   CO. 

1836.     2  Edwards  Chancery  (N.  Y.)  657. 1 

THE  facts  in  this  case,  as  they  appeared  by  the  pleadings,  were 
briefly  these. 

The  complainant  and  Catharine  A.  Newbold,  since  deceased,  as 
guardians  of  infants,  were  stockholders  of  the  Globe  Insurance  Corn- 
pan}'.  These  persons  possessed  one  hundred  and  ten  shares  of  its 
capital  stock,  the  par  value  of  each  share  being  fifty  dollars.  The  said 
company  was  incorporated  for  insurance  against  loss  by  fire,  with  a 
capital  of  one  million  of  dollars,  and  conducted  its  business  in  the  city 
of  New  York. 

At  a  meeting  of  the  directors  of  the  company  held  on  the  tenth  day 
of  November,  one  thousand  eight  hundred  and  thirty-five,  a  statement 
of  its  affairs,  up  to  the  first  of  December  then  next,  was  exhibited  by 
the  proper  officers  and  committees  of  the  company,  showing  a  surplus 
fund,  arising  from  profits  then  earned  and  undivided,  amounting  to 
seventy-six  thousand  four  hundred  and  twent}*-nine  dollars  and  sixty- 
nine  cents. 

On  the  exhibition  of  these  statements,  the  directors,  by  a  resolution 
passed  on  the  same  day,  declared  a  dividend  of  three  and  one  half  per 
centum  on  the  capital  stock  of  the  company^  for  the  six  months  then 

1  Only  so  much  of  the  case  is  given  as  relates  to  one  point.  Arguments  omitted. 
—  ED. 


326  LE   ROY   V.   GLOBE   INS.   CO. 

last  past,  to  be  paid  out  of  such  surplus  profits  on  and  after  the  first 
day  of  December  then  next.  This  dividend  Amounted  to  thirty -five 
thousand  dollars,  which  sum,  on  the  thirtieth  day  of  November,  one 
thousand  eight  hundred  and  thirty-five,  was  carried,  in  the  books , of  the 
company,  to  TEe  debit  of  profit  a,nd  loss  ;  leaving  the  capital  then  entire 
and  ;i  further  surplus  to  the  credit  of  the  company,  for  profits  then 
earned  and  not  divided,  amounting  to  forty-one  thousand  four  hundred 
and  twenty-nine  dollars  and  sixty-nine  cents.  Notice  of  this  dividend 
and  that  it  would  be  paid  on  and  after  the  first  day  of  December  was 
given  in  the  public  papers  on  the  eleventh  day  of  November,  one  thou- 
sand eight  hundred  and  thirty-five.  Checks  or  drafts  on  the  Merchants 
Bank  were  accordingly  prepared,  such  checks  being  severally  filled  up 
for  the  amount  of  the  dividend  payable  to  each  stockholder.  These 
checks  were  all  dated  the  first  day  of  December,  one  thousand  eight 
hundred  and  thirty-five.  They  were  signed  by  Henry  Rankin,  Presi- 
dent, made  payable  to  the  order  of  Richard  Dunn,  Secretar}-  of  the 
company,  and  were  placed  in  the  hands  of  the  latter,  to  be  endorsed 
by  him  and  delivered  over  to  the  stockholders,  as  they  should  call  for 
them,"  on  their  signing  receipts  for  the  same  in  the  dividend  book. 
Between  the  first  and  seventeenth  da}rs  of  December,  about  four-fifths, 
in  amount,  of  these  checks,  were  called  for  by  and  were  delivered  to 
stockholders  and  duly  paid  on  presentment  at  the  bank. 

Among  the  checks  thus  filled  up  and  signed,  was  one  for  one  hundred 
and  ninety-two  dollars  and  fifty  cents,  intended  to  pay  the  dividend 
due  to  the  complainant  and  Mrs.  Newbold  on  their  one  hundred  and 
ten  shares  of  stock  and  to  be  delivered  to  them. 

On  the  night  of  the  sixteenth  of  December,  one  thousand  eight 
hundred  and  thirty-five,  the  great  fire  took  place  in  the  city  of  New 
York :  the  complainant  and  other  stockholders,  to  the  amount  of  about 
one  fifth  in  value,  not  having  then  called  for  their  dividends.  On  the 
eighteenth  of  the  same  December,  the  complainant  applied  for  the  check 
payable  to  him  and  Mrs.  Newbold,  to  the  secretary,  who,  acting  under 
the  orders  of  the  directors,  refused  to  deliver  it  or  otherwise  pay  the 
dividend,  on  the  ground  that  the  company  had  sustained  losses  by  the 
fire  above  mentioned  to  an  amount  which  had  rendered  it  insolvent. 
On  application  to  the  directors,  the  same  answer  was  given ;  and  the 
dividend  remained  unpaid. 

On  the  twenty-fifth  day  of  Januaiy,  one  thousand  eight  hundred  and 
thirty-six,  the  directors  declared  the  company  to  be  insolvent ;  and 
three  of  them,  namely,  the  defendants,  Henr}r  Rankin,  Isaac  Carow 
and  James  Heard,  were  (under  the  act)  appointed  receivers  of  its 
estate  and  effects.  The  declaration  of  insolvency  and  a  certificate  of 
the  appointment  of  the  receivers,  botli  under  the  seal  of  the  cornpany, 
were  filed  with  the  clerk  of  the  court  of  chancery  for  the  first  circuit ; 
on  the  same  day  and  thereupon  the  receivers  took  upon  themselves  the 
duties  of  their  office  and  possessed  themselves  of  all  the  estate  of  the 
company,  including  the  unpaid  portion  of  the  said  dividend. 


LE   ROY   V.   GLOBE   INS.   CO.  327 

T.  L.  Of/den,  for  complainant. 

D.  Lord,  for  defendants. 

McCouN,  VICE-CHANCELLOR.  —  This  case  does  not  necessarily  call 
for  a  decision  of  the  question,  whether,  as  between  the  stockholders  of 
an  insolvent  insurance  company  and  the  creditors,  the  former  are 
entitled  to  all  the  surplus  which  remained  with  the  company  undivided 
at  the  time  of  its  disaster  over  and  above  the  entire  capital? 

Although  there  is  here  such  a  surplus  of  upwards  of  forty-one 
thousand  dollars,  besides  the  dividend,  amounting  to  thirty-five  thou- 
sand dollars,  which  was  declared  on  the  tenth  day  of  November  and 
made  payable  on  and  after  the  first  day  of  December,  yet  the  com- 
plainants, in  their  bill,  only  claim  to  have  their  parts  or  portions  of 
this  dividend,  which  the}-  have  not  received,  now  paid  over  to  them 
out  of  the  funds  in  the  hands  of  the  receivers,  instead  of  leaving  the 
money  there  to  be  applied  as  assets  of  the  company  in  discharge  of 
its  debts. 

The  complainants  assert  their  right  to  the  money  upon  the  ground  of 
its  having  become  theirs  by  an  express  appropriation  and  setting  apart 
so  much  out  of  the  companj-'s  earnings  for  the  stockholders  and  thereby 
distinguished  from  the  general  mass  of  the  company's  funds ;  and  I  am 
convinced  that  enough  has  been  done  to  produce  this  separation  in  the 
view  of  u  court  of  equity  and  to  confer  upon  this  amount  the  character 
of  a  trust  fund  which  could  apt  aftprwapfo  be  diverted  to  other  objects. 

The  investigation  of  the  affairs  of  the  company  and  the  ascertainment 
of  a  clear  surplus  to  warrant  a  dividend  —  declaring  that  dividend  by  a 
resolution  of  the  board  of  directors  — fixing  the  period  for  its  payment 
—  giving  publicity  to  it  —  canring  the  amount  on  the  books  of  the 
company  to  the  debit  of  profit  and  loss  —  apportioning  the  same  among 
the  stockholders,  \>\  filling  up  and  signing  checks  upon  the  bank  where 
the  funds  were  deposited  for  the  purpose  of  being  delivered  to  each 
stockholder  when  called  for :  —  these  are  all  acts  which  the  company, 
by  its  officers,  might  lawfully  perform.  These  acts  became  binding  upon 
the  company  in  its  corporate  capacit}- ;  and  gave  to  the  stockholders 
individually  rights  which  the  directors  and  officers  of  the  company 
could  not  afterwards  take  from  them.  If,  for  instance,  they  had 
refused,  after  the  first  day  of  December,  to  deliver  out  the  checks  or 
make  payment  of  the  dividends  and  no  insolvency  had  intervened,  it 
appears  to  me  there  would  have  been  no  difficulty  in  the  remedy  by 
mandamus  in  favor  of  all  the  stockholders  or  b}-  action  at  the  suit  of 
individuals  from  whom  the  payment  was  withheld. 

Neither,  I  apprehend,  could  there  be  any  valid  objection  to  a  bill  in 
equit}'  for  the  purpose  of  obtaining  possession  of  the  checks  or  the  fund 
in  the  bank  upon  which  they  were  drawn,  upon  the  footing  of  its  being 
a  trust  fund  which  the  officers  of  the  company  were  bound  to  distribute 
after  the  first  day  of  December  and  over  which  they  had  no  other 
control.  That  the  officers  of  the  company  considered  the  mone}'  which 
was  deposited  to  its  credit  in  the  bank  appropriated  to  meet  the  checks 


328  LE   KOY   V.   GLOBE   INS.   CO. 

is  evidenced  b3"  the  fact  that  they  went  on  delivering  out  checks  to  such 
of  the  stockholders  as  called  for  them  until  the  seventeenth  of  December, 
when  the  disastrous  fire  had  occurred ;  and  they  would  have  delivered 
cheeks  to  these  complainants  in  like  manner  if  they  had  called  to  receive 
them.  It  makes  no  difference,  in  my  judgment,  that  the  money  was  not 
told  out  and  specifically  set  apart  in  the  bank  to  meet  these  checks  or  that 
a  separate  fund  was  not  created  for  the  purpose  or  that  the  money 
intended  to  meet  them  still  formed  a  part  of  the  general  mass  standing 
to  the  credit  of  the  company  on  the  books  of  the  bank :  for  this  court 
can,  nevertheless,  \a.y  hold  of  the  mass  and  separate  so  much  as  may 
be  necessary  to  accomplish  what  was  intended  and  which  accident 
alone  prevented  at  the  time.  Up  to  the  moment  of  the  prostration  of 
the  company,  the  intention  remained,  on  the  part  of  those  who  were 
charged  with  the  management  of  its  affairs,  to  continue  the  appropria- 
tion and  consummate  the  payment  of  the  dividends  which  had  been 
nearly  completed.  It  was  a  matter  no  longer  executory  in  the  view  of 
the  parties  ;  and  so  far  as  it  remained  unexecuted  this  court  will  now 
perform  Jt.  The  intention  must  be  fulfilled ;  and,  for  this  purpose,  a 
court  of  equity  will  consider,  not  merely  the  sums  which  were  paid  out 
in  dividends,  but  the  whole  thirty-five  thousand  dollars  as  actually 
appropriated  and  set  apart  for  distribution  among  the  stockholders 
from  and  after  the  first  day  of  December  and  regard  it  as  a  trust  fund 
to  which  the  stockholders  had  acquired  vested  rights  —  not  in  their 
corporate  capacity,  but  as  individuals  to  whom  the  money  legally  and 
equitably  belonged  distinct  from  their  other  interests  in  the  funds  and 
effects  of  the  company. 

Having  acquired  this  right,  as  between  them  and  the  corporation, 
the  assignment  or  transfer  to  the  receivers  could  not  take  it  away. 
The  receivers  do  not  stand  in  the  light  of  purchasers  for  valuable  con- 
sideration without  notice  ;  and,  under  such  circumstances  as  exist  here, 
are  bound  by  the  trust :  Adair  v.  Shaw,  1  Sch.  &  Lef.  262 ;  Wood  v. 
Dummer,  3  Mason's  R.  312. 

The  act  of  the  eighteenth  of  January,  one  thousand  eight  hundred 
and  thirty-six,  under  which  the  receivers  were  appointed,  vests  in  them 
all  the  property  and  effects  of  the  corporation  ;  but,  like  any  other 
assignment  by  operation  of  law,  such  as  in  bankruptcy  or  under  our 
insolvent  acts  it  does  not  pass  trust  property  —  but  only  such  as  the 
bankrupt  or  insolvent  held  or  was  possessed  of  or  entitled  to  for  his 
own  benefit. 

I  shall  decree  that  the  receivers  hand  over  to  the  stockholders  the 
amount  of  the  unpaid  dividend  declared  on  the  tenth  day  of  November 
and  payable  on  the  first  of  December,  1835  ;  .  .  . 


FORD  V.  EASTHAMPTON  RUBBER  THREAD  CO.        329 


FORD  v.  EASTHAMPTON   RUBBER  THREAD   CO. 

1893.     158  Mass.  84. 

CONTRACT  for  money  had  and  received.  At  the  trial  in  the  Superior 
Court,  without  a  jury,  before  Aldrich,  J. ,  there  was  evidence  tending 
to  show  that  the  plaintiff  on  June  16,  1891,  owned  fifty-two  shares  of 
the  capital  stock  of  the  defendant  company,  of  the  par  value  of  one 
hundred  dollars  per  share ;  that  on  that  day  the  directors  passed  the 
following  vote,  namely,  "  That  a  dividend  of  20  per  cent  be  paid  to 
stockholders  of  this  date,  payable  Tuesday,  June  23d,  1891 "  ;  that  on  , 
said  June  16th  the  annual  meeting  of  stockholders  of  the  company  for' 
the  election  of  directors  was  held  immediately  after  the  meeting  of 
directors,  according  to  custom,  and  duly  elected  five  directors,  as  pro- 
vided by  the  by-laws  of  the  company,  two  only  of  the  old  directors 
being  re-elected,  and  no  director  being  re-elected  who  voted  for  the 
twenty  per  cent  dividend,  though  the  two  who  were  re-elected  were 
present  at  the  meeting  when  it  was  voted  ;  and  that  on  said  June  16th, 
as  soon  as  the  stockholders'  meeting  adjourned,  the  directors  elected 
and  re-elected  thereat  met,  qualified,  organized  for  the  year,  and 
passed  the  following  votes:  "That  the  vote  passed  by  the  directors 
of  this  company  this  day  declaring  a  dividend  of  20  per  cent  on 
the  capital  stock  of  the  company,  paj'able  Tuesday,  June  23d,  1891, 
be  reconsidered  and  rescinded  ;  the  same  is  hereby  rescinded.  That  a 
dividend  of  six  per  cent,  payable  June  23d  instant  to  stockholders  of 
record  this  day,  be  declared  in  place  of  the  dividend  voted  at  earlier 
meeting  of  this  board  this  day."  It  alsoappeared  thfttf  nf>  money  wfl.^ 
set  aside  or  provided  to  pay  said  dividend  of  twenty  per  cent,  but  tbe_ 
company  had  ample  means  and  facilities  for  paying  the  twenty  per  cent 
dividend ;  that  always  before  mone}'  had  been  provided  to  pay  a  divi- 
dencTTJelbre  it  was  declared  ;  that  mone}'  to  pay  said  six  per  cent  dividend 
was  provided  after  the  meeting  and  before  said  23d  of  June  by  borrow- 
ing, and  the  same  was  set  aside  and  deposited  in  bank  therefor ;  that 
the  treasurer  sent  the  check  of  the  defendant  on  the  bank  where  the 
mone}'  was  deposited  to  each  stockholder  of  record  of  said  June  16th 
to  pa}*  the  dividend  on  his  stock  at  six  per  cent,  including  the  plaintiff, 
on  said  23d  June,  1891 ;  and  that  the  plaintiff  declined  to  accept  the 
check,  and  returned  the  mone}-  to  the  treasurer.  It  further  appeared 
in  evidence  that  no  stockholder  of  the  defendant  had  been  paid  the 
twenty  per  cent  dividend  for  June,  1891  ;  that  a  majority  of  the  stock- 
holders had  accepted  the  dividend  of  six  per  cent  paid  by  checks  as 
aforesaid  on  June  23,  1891,  in  full;  that  the  plaintiff,  by  his  attorney, 
by  letter  of  June  30,  1891,  demanded  pa3'ment  of  the  twenty  per  cent 
dividend  from  the  defendant ;  and  that  the  plaintiff  made  no  objection 
to  the  check  of  the  defendant  sent  him  to  pa}-  the  dividend  of  June  16, 


330  FORD   V.   EASTHAMPTON   RUBBER   THREAD   CO. 

1891,  except  that  it  was  for  a  dividend  of  six  per  cent,  instead  of 
twenty  per  cent. 

The  defendant  asked  the  court  to  rule  that  the  directors  elected  on 
June  16  had  a  right  on  that  da}7  to  rescind  the  vote  whereby  the 
twenty  per  cent  dividend  was  declared  payable  at  a  future  day ;  and 
that  the  plaintiff  could  not  recover.  The  judge  declined  so  to  rule, 
ordered  judgment  for  the  plaintiff,  and  reported  the  case  for  the  deter- 
mination of  this  court.  If  the  refusal  to  rule  and  order  of  judgment 
were  correct,  judgment  was  to  be  affirmed  ;  otherwise,  judgment  was  to 
be  ordered  for  the  defendant. 

G.  M.  Stearns,  for  the  plaintiff. 

W.  G.  Bassett,  for  the  defendant. 

FIELD,  C.  J.  It  seems  to  be  settled  that,  when  a  dividend  has  been 
fully  declared,  the  corporation  thereby  manifests  its  intention  that  the 
amount  of  the  dividend  should  be  considered  as  having  been  separated 
from  the  other  property  of  the  corporation,  and  as  having  become  the 
individual  property  of  the  stockholders,  and  that  therefore,  when  the 
dividend  becomes  payable  according  to  the  terms  of  the  vote  declaring 
it,  each  stockholder  has  a  right  to  demand  payment  of  the  proportional 
part  of  the  dividend  which  belongs  to  his  shares  of  stock,  and  to  sue  the 
corporation  for  it,  if  it  is  not  paid  on  demand.  In  some  cases  money 
or  other  property  equal  to  the  whole  amount  of  the  dividend  declared 
has  been  specifically  set  apart  as  a  fund  appropriated  to  the  payment 
of  the  dividend,  and  the  stockholders  have  been  regarded  as  the  cestuis 
que  trust  of  this  fund,  each  entitled  to  his  share.  In  other  cases,  the 
corporation  has  credited  the  stockholders  with  the  amount  of  their 
shares  of  the  dividend,  and  the  stockholders  have  assented  to  this,  and 
the  amount  so  credited  has  been  regarded  as  a  debt  of  the  corporation 
to  the  stockholders  ;  or  the  corporation  has  paid  to  some  of  the  stock- 
holders their  shares  of  the  dividend,  and  has  refused  to  pay  anything 
to  the  others,  and  it  has  been  held  that  the  corporation  must  pay  all 
alike.  See  Beers  v.  Bridgeport  Spring  Co.  42  Conn.  17;  State  v. 
Baltimore  &  Ohio  Railroad,  6  Gill,  363  ;  King  v.  Paterson  &  Hud- 
son River  Railroad,  5  Dutch.  504 ;  Jermain  v.  Lake  Shore  &  Michi- 
gan Southern  Railway,  91  N.  Y.  483  ;  Hopper  v.  Sage,  112  N.  Y. 
530  ;  Jackson  v.  Newark  Plankroad  Co.  2  Vroom,  277 ;  Wheeler  v. 
Northwestern  Sleigh  Co.  39  Fed.  Rep.  347.  When  a  dividend  has 
been  declared  paj'able  at  a  definite  future  time,  but  no  fund  has  been 
set  apart  lor  the  payment  of  the  dividend,  and  the  corporation  niean- 
whileb~ecomes  insolvent,  whether  the  stockholders  to  the  extent  of 
their  proportions  of  the  dividend  should  share  ratably  with  the  creditors 
of  the  corporation  in  its  propertj'  has  not,  so  far  as  we  know,  been 
recently  considered,  but  the  decision  in  Lowene  v.  American  Ins.  Co. 
6  Paige,  482,  is  that  they  should.  The  setting  apart  of  a  fund  to  pay 
a  dividend  has  been  held  to  give  a  lien  upon  it  to  the  stockholders, 
which  they  can  enforce  to  the  exclusion  of  the  general  creditors  of  the 
corporation.  In  re  Le  Blanc,  14  Hun,  8,  and  75  N.  Y.  598.  Le  Roy 


FOKD  V.  EASTHAMPTON  RUBBER  THREAD  CO.        331 

v.  Globe  Ins.  Co.  2  Edw.  Ch.  657.  The  English  Companies'  Act, 
1862,  (25  &  26  Viet.  c.  89,  §  38,  cl.  7,)  provides  that  "  no  sum  due  to 
any  member  of  a  company,  in  his  character  of  a  member,  by  way  of 
dividends,  profits,  or  otherwise,  shall  be  deemed  to  be  a  debt  of  the 
company,  pa3'able  to  such  member  in  a  case  of  competition  between 
himself  and  an}7  other  creditor  not  being  a  member  of  the  company  ; 
but  any  such  sum  may  be  taken  into  account,  for  the  purposes  of  the 
final  adjustment  of  the  rights  of  the  contributories  amongst  them- 
selves." Upon  these  questions,  however,  we  desire  to  express  no 
opinion. 

It  has  been  argued  that  there  is  no  consideration  for  the  promise  of 
a  corporation  to  pay  a  dividend  to  its  stockholders,  but  we  think  that 
the  doctrine  of  consideration  applicable  to  a  simple  contract  between  •* 
persons  having  no  fiduciary  relations  to  each  other  is  not  applicable  to 
such  promise.  It  is  the  object  of  a  private  business  corporation  to 
make  money  for  its  stockholders,  and,  under  our  laws,  it  is  ordinarily 
the  duty  of  the  directors  from  time  to  time  to  declare  dividends  ou^of 
the  net  earnings,  if  there  are  any,  and  it  must  be  left  largely  to  the  dis- 
cretion of  the  directors  to  determine  when  and  for  how  much  such  divi-  <- 
dends  should  be  declared.  The  whole  property  of  the  corporation  is 
held  on  a  sort  of  trust  for  the  stockholders,  and  the  directors  are,  in  a 
general  sense,  the  managers  ;  and  when  a  dividend  is  declared  by  the 
directors,  the  declaration  is  a  determination  bjr  a  body  authorized  to 
make  it  that  the  amount  of  the  dividend  should  be  taken  from  the  prop- 
erty of  the  corporation  and  paid  over  to  the  stockholders.  The  cause 
of  action  of  each  stockholder  against  the  corporation  for  non-payment 
of  the  "dividend  does  not  arise  from  any  actual  contract  between  the 
corporation  and  its  stockholders,  but  from  the  nature  of  the  organiza- 
tion, and  the  relation  of  the  stockholders  to  the  corporation  and  its 
property.  Unless  the  rights  of  creditors  intervene,  or  the  corporation 
is  enjoined  from  paying  the  dividend,  on  the  ground  that  the  dividend 
has  not  been  earned,  or  on  some  other  ground,  the  amount  of  the  divi- 
dend, after  it  has  been  declared  and  has  become  payable,  is  considered 
as  property  held  by  the  corporation  for  the  use  of  the  stockholders  indi- 
viduall}',  and  the  stockholders  may  recover  their  shares  as  mone}'  or 
property  had  and  received  to  their  use.  We  have  been  able  to  find 
little  or  no  authority  on  the  precise  question  involved  in  this  case, 
namely,  whether,  after  a  dividend  has  been  duly  declared  \>y  a  vote  of 
the  directors,  but  payable  at  a  future  time,  the  vote  can  be  rescinded 
at  a  subsequent  meeting  of  the  directors,  held  before  the  time  at  which 
the  dividend  becomes  payable  according  to  the  vote,  when  the  fact  that 
a.  dividend  has  been  declared  has  not  been  made  public,  or  in  any 
manner  communicated  to  the  stockholders,  and  when  no  fund  has  been 
set  apart  for  the  payment  of  the  dividend.  On  principle,  we  do  not 
see  why  the  directors  may  not  rescind  such  a  vote,  under  the  circum- 
stances stated.  By  the  vote  no  specific  property  passed  to^  the_sjo.ck- "" 
holders.  If  the  vote  be  regarded  as  a  declaration  of  trust  in  favor  of 


332        McNAB  V.  McNAB  AND  HARLIN  MANUF.  CO. 

the  stockholders,  it  could  be  revoked  before  it  was  communicated  to 
them  or  any  property  was  identified  and  set  aside  for  them.  Indeed, 
cases  may  easily  besupposed  of  such  a  change  in  the  affairs  of  a  cor- 
poration, between  the  time  when  a  dividend  is  declared  and  the  time 
when  it  becomes  pa3"able,  as  to  make  the  exercise  of  such  a  power  by 
the  directors  useful,  if  not  necessary,  for  the  successful  continuance 
of  the  business  of  the  corporation.  It  appears  in  the  present  case  that 
the  meeting  of  the  new  directors  at  which  the  vote  was  rescinded  was 
held  after  the  annual  meeting  of  the  stockholders,  but  on  the  same  day 
as  the  meeting  of  the  directors  at  which  the  vote  was  passed,  which 
was  held  just  before  the  meeting  of  the  stockholders  ;  and  that  at  the 
meeting  of  the  stockholders  "  the  president  did  not,  as  had  for  many 
years  been  the  custom,  announce  that  any  dividend  had  been  declared, 
or  promulgate  the  same  to  the  stockholders  "  ;  and  it  does  not  appear 
that  any  of  the  stockholders,  except  the  directors,  knew  of  the  original 
vote,  or  that  an}T  of  the  stockholders  had  made  any  contracts,  incurred 
any  liability,  or  done  anything  relying  on  the  vote.  It  also  appears 
that  no  fund  was  distinctly  set  apart  for  the  payment  of  the  clivTdencT 
before  the  vote  was  rescinded.  As  the  passage  of1  the  vote  did  not 
constitute  an  actual  contract  of  the  corporation  with  its  stockholders, 
but  was  merely  a  mode  of  dividing  the  earnings  of  the  property  of  the 
corporation  among  the  stockholders,  we  are  of  opinion  that  before  the 
division  had  been  actually  made,  and  before  the  position  of  the  stock- 
holders had  been  changed  in  reliance  on  the  vote,  —  certainly  before 
the  passage  of  the  vote  had  been  made  public,  or  communicated  to  the 
stockholders,  —  it  was  within  the  power  of  the  directors,  at  a  meeting 
subsequent  to  that  at  which  the  vote  was  passed,  to  rescind  it.  In 
this  action  at  law,  we  cannot  supervise  the  exercise  of  this  power  by 
the  directors.  Judgment  for  the  defendant. 


McNAB  v.  McNAB   &  HARLIN  MANUF.   CO.,   ET  ALS. 

1891.     69  New  York  Supreme  Court  (62  Hun.),  18.1 

NEW  YORK  Supreme  Court,  General  Term,  First  Department. 
Appeal  from  Special  Terra,  New  York  Count}*. 

Action  brought  to  compel  the  division  of  a  surplus  among  the  share- 
holders. A  judgment  was  rendered,  dismissing  plaintiff's  complaint. 
Plaintiff  appealed. 

Artemus  V.  Smith,  for  appellant. 

Frederic  R.  Coudert  and  Frederic  G.  Dow,  for  respondents. 

DANIELS,  J.  The  McNab  &  Harlin  Company,  defendant,  was  incor- 
porated on  or  about  the  28th  of  April,  1871,  under  the  laws  of  this 

1  Only  so  much  of  the  case  is  given  as  relates  to  one  point.  —  ED. 


McNAB  V.  McNAB  AND   HARLIN   MANTJF.   CO.  333 

state  providing  for  the  incorporation  of  manufacturing  companies.  Its 
business  was  declared  to  be  that  of  manufacturing  brass  and  iron  goods 
for  sale,  and  since  its  incorporation  it  has  carried  on  that  business. 
The  plaintiff  was  the  owner  of  8  shares  of  its  capital  stock,  which 
consisted  of  150  shares,  of  $1,000  each,  and  the  other  defendants  were 
officers  and  shareholders  in  the  company.  After  its  formation,  and  in 
or  about  the  year  1877,  the  company  became  unable  to  pay  its  debts, 
and  a  proceeding  in  bankruptcy  was  instituted  to  discharge  it  from  its 
debts.  Soon  after  the  proceeding  was  commenced  the  defendant  Harlin 
became  the  president  of  the  compan}*.  He  owned  seventy -eight  shares 
of  its  capital  stock,  and  compromised  the  debts  owing  to  the  creditors  of 
the  company.  The  agreement  for  the  compromise  was  to  pa}-  seventy- 
five  per  cent,  within  the  period  of  three  years.  After  he  took  charge 
of  the  affairs  of  the  company  as  its  president,  and  under  his  manage- 
ment, the  business  became  prosperous,  and  the  seventj'-five  per  cent, 
was  paid  to  the  creditors,  and  afterwards  they  were  paid  the  additional 
sum  of  twentj'-five  per  cent.,  making  payment  of  their  demands  in  full. 
The  prosperit}'  of  the  company  continued,  owing  to  the  judicious 
management  of  the  president,  and  for  eight  years  prior  to  the  time 
of  the  trial,  which  took  place  in  May,  1891,  its  net  profits  amounted 
to  the  sum  of  $100.000  a  year,  or  a  sum  slightly  in  advance  of  that 
amount,  and  from  the  year  1881  to  the  year  1891  it  made  and  paid  a 
dividend  on  its  shares  amounting  to  an  average  exceeding  the  sum 
of  twenty-five  per  cent. ;  and,  in  addition  to  the  dividends  made  in 
this  manner,  it  accumulated  a  large  surphis,  which  was  mainly  used 
in  its  business,  but  to  the  extent  of  about  one  hundred  thousand 
dollars  was  in  its  deposit  accounts.  And  it  was  stated  by  the  treas- 
urer in  his  evidence  upon  the  trial  that  there  was  at  that  time  an 
actual  surplus  owned  by  the  company  amounting  to  the  sum  of  $152,209, 
and  the  plaintiff,  whose  action  was  brought  to  secure  the  distribution 
of  the  surplus  by  \va,y  of  dividends,  alleged  and  claimed  that  a  still 
larger  surplus  had  been  earned  and  was  owned  by  the  company ;  and  it 
was  one  of  the  principal  objects  of  the  action  to  secure  the  division  of 
this  surplus  by  way  of  dividends  among  the  shareholders.  But  it  was 
proved  in  the  course  of  the  trial  that  the  surplus  maintained  by  the 
company  was  profitably  emplo3'ed  in  purchasing  the  material  used  by 
it  in  tlie~ooursc  of  its  manufactures,  and  that  it  was  considered  for  the 
best  interests  of  the  company  not  to  divide  this  surplus  among  the 
shareholders.  The  directors,  in  restricting  the  dividends  as  tbev  3p. 
seem  to  have  been  impressed  with  the  propriety  of  this  conviction,  and 
the  dividends  were  accordingly  limited  to  such  amounts  from  year  to 
year  as  did  not  intrench  upon  the  large  surplus  which  had  been  earned 
and  secured.  In  their  action  upon  this  subject  the  trustees  appear  to 
have  exercisid  the  judgment  which  they  deemed  to  be  most  consistent 
with  the  prosperity  and  maintenance  of  the  interests  of  the  company, 
and  the  statute  under  which  the  incorporation  took  place  delegated  the 
authority  of  the  trustees  to  manage  the  stock,  property,  and  concerns 


334  STEINGER'S  CASE. 

of  the  company  (2  Rev.  St.,  5th  Ed.,  p.  503,  §  29 ;)  and  to  what 
amount  the  dividends  shall  be  made,  and  the  extent  of  the  surplus 
which  the  interests  of  the  company  may  require  to  be  retained,  are 
within  this  delegation  of  authority  confided  to  the  trustees.  And  it 
was  so  regarded  in  Williams  v.  Telegraph  Co.,  93  N.  Y.  162,  where  it 
was  said,  with  the  apparent  approval  of  the  court,  that  *'  when  a 
corporation  has  a  surplus,  whether  a  dividend  shall  be  made,  and  if 
V  made,  how  much  it  shall  be,  and  when  and  where  it  shall  be  payable, 
rest  in  the  fair  and  honest  discretion  of  the  directors,  uncontrollable  by 
the  courts."  Id.  192.  And  no  broader  principle  than  this  was  either 
stated  or  sanctioned  in  Scott  v.  Fire  Co.,  7  Paige,  198,  or  in  either  of 
the  other  authorities  which  have  been  brought  to  the  attention  of  the 
court.  The  principle  to  be  applied  is  that  which  shall  secure  the 
observance  of  good  faith  on  the  part  of  the  directors,  and  this  principle 
was  neither  denied  nor  intrenched  upon  in  Seeley  v.  Bank,  8  Daly, 
400,  which  was  affirmed  in  78  N.  Y.  608.  The  trusteesjirejphQgpri  hy 
the  shareholderSjJiOjexercise  their  best  judgment,  depending  ujDorrtheir 
knowledge  of  the  affairs  and  condition  of  the  company  ;  and  when  that 
has  been  done,  the  courts  do  not  undertake  to  control  their  action, 
although  they  might  differ  in  their  views  of  the  proper  management  to 
bg  ^adopted  and  followed.  No  reason  has  been  disclosed  by  the  case 
V  for  doubting  or  impeaching  the  good  faith  of  these  trustees.  Neither 
can  it  be  affirmed  justly,  in  view  of  the  large  business  carried  on  by  the 
company,  that  they  acted  unreasonably  or  capriciously  in  declining 
to  order  a  larger  dividend  than  that  which  was  in  fact  paid  to  the 
shareholders. 

[Opinion  on  other  points  omitted.] 

Judgment  affirmed. 


STRINGER'S  CASE.     IN  BE  MERCANTILE  TRADING  CO. 

1869.     L.  R.  4  Chan.  Ap.  475. 

THIS  was  an  appeal  from  an  order  of  Vice-Chancellor  Malms,  made 
in  the  winding  up  of  the  Mercantile  Trading  Company,  Limited. 

The  company  was  registered  under  the  Companies  Act,  1862,  on 
the  27th  of  June,  1863.  The  objects  of  the  company,  as  stated  in  the 
memorandum  of  association,  were  the  purchase  of  goods  and  ships  for 
export  and  transmission  to  America,  for  sale  or  barter  and  return  and 
sale  of  goods  from  thence,  and  the  chartering  or  freighting  of  ships, 
and  all  other  matters  necessary  for  carrying  on  the  operations  of  the 
company,  or  other  operations  of  a  similar  character.  It  was,  however, 
admitted  that  the  real  object  of  the  company  was  to  trade  with  the 
Confederate  States  of  America,  by  running  the  blockade  then  main- 
tained by  the  government  of  the  Federal  States.  For  this  purpose 


STRINGER'S  CASE.  335 

they  provided  a  line  of  ships  running  from  Bermuda  to  Charleston 
and  Wilmington,  which  were  intended  to  carry  goods  from  England 
to  the  Confederate  government,  and  to  bring  back  cargoes  of  cotton  in 
return. 

The  company  had  a  nominal  capital  of  £150,000,  of  which  about. 
£112,000  had  been  paid  up.  The  articles  of  association  embodied  the 
rules  given  in  Table  A  of  the  Companies  Act,  1862,  which  provide,  in 
Rule  73,  that  "  no  dividend  shall  be  payable  except  out  of  the  profits 
arising  from  the  business  of  the  compan}*,  except  so  far  as  modified 
by  the  articles ;"  and  the  articles  provided,  by  Article  5,  that  "the 
directors  shall  declare  a  dividend  on  the  subscribed  capital  of  the  com- 
pany as  soon  and  as  often  as  the  profits  of  the  company  in  hand  are 
sufficient  for  payment  of  a  dividend  of  £5  per  cent,  on  such  capital, 
subject  to  the  resolutions  of  a  general  meeting  of  the  company  called 
with  reference  thereto." 

Shortly  after  the  establishment  of  the  company,  the  directors  entered 
into  a  contract  with  the  Confederate  government,  under  which  the  Con- 
federate government  agreed  to  be  co-owners  of  the  ships  employed  by 
the  company,  and  that  the  ships  should  be  owned  in  the  proportion  of 
two-thirds  by  the  Confederate  government,  and  one-third  by  the  com- 
pany ;  the  ownership  of  the  Confederate  government  to  be  paid  for  in 
cotton,  at  Charleston  or  Wilmington,  on  the  basis  of  6d.  per  pound  for 
"  Middling  Upland"  cotton. 

Several  successful  trips  were  made  by  the  ships,  and  although  some 
of  them  were  captured  or  lost,  a  considerable  profit  was  at  first  made 
by  the  company  on  their  adventures.  In  May,  1864,  a  balance  sheet 
was  made  out  of  the  state  of  the  company,  down  to  the  29th  of 
February,  1864,  showing  a  profit  of  £42,718  15s.  2c?.,  out  of  which  the 
directors  proposed  a  dividend  to  be  paid  at  the  rate  of  £25  per  cent, 
on  the  capital,  amounting  to  about  £28,000.  This  dividend  was  adopted 
by  a  general  meeting  of  the  company,  held  on  the  1 7th  of  May. 

The  balance  sheet  was  submitted  to  the  directors  of  the  Agra  and 
United  Service  Sank,  the  company's  bankers,  and  was  examined  by 
their  accountants.  The  bank  then  advanced  them  upwards  of  £21,000 
towards  the  payment  of  the  dividend  to  the  shareholders,  although 
their  account  was  already  overdrawn  to  the  amount  of  £5000.  The 
dividend  received  by  Mr.  E.  P.  Stringer,  the  managing  director,  in 
respect  of  his  shares,  amounted  to  £3560. 

The  termination  of  the  civil  war  in  America,  "by  the  success  of  the 
Federal  government,  caused  the  failure  of  the  compan}*,  the  cotton  appro- 
priated to  them  in  the  Confederate  /States  being  all  destroyed  or  captured, 
and  the  debt  due  from  the  Confederate  government  turning  out  worthless. 
The  company  was  accordingly  wound  up,  the  only  creditor  *of  large 
amount  being-  the  Agra  and  Masterman's  Bank,  which  had  succeeded 
to  the  business  of  the  Agra  and  United  Service  Bank.  The  present 
application  was  made  by  the  official  liquidator  to  obtain  a  repayment 
by  Mr.  Stringer  of  the  dividend  received  by  him,  on  the  ground  that 


336  STRINGER'S  CASE. 

the  balance  sheet  was  delusive,  and  the  dividend  really  paid  out  of  the 
capital  of  the  company.  The  sections  of  the  Companies  Act,  1862, 
under  which  it  was  contended  that  the  Court  had  jurisdiction  to  order 
the  return  of  the  money  upon  this  application,  were  -the  101st  and 
165th. 

The  principal  objections  made  to  the  balance  sheet  were  as  follows : 
First,  that  the  directors  had  taken  credit  for  a  sum  of  £51,589  due  to 
the  company  from  the  Confederate  government  as  an  asset  of  the 
company  at  its  full  value  ;  secondly,  that  they  had  also  taken  credit  for 
cotton  within  the  Confederate  States,  which  was  all  subsequently 
destroyed,  at  the  value  of  £17,000  ;  and,  thirdly,  that  they  had  entered 
the  loss  of  three  ships  as  a  loss  of  only  one-third  of  their  value,  thus 
reckoning  the  guarantee  of  the  Confederate  government  for  the  other 
two-thirds  at  its  full  value. 

The  Vice-Chancellor  was  of  opinion  that  the  dividend  declared  was 
altogether  delusive,  and  that  it  amounted  to  a  return  of  one-third  of 
the  capital  to  the  shareholders ;  but  he  also  held  that  he  had  no  juris- 
diction under  the  101st  or  165th  sections  of  the  Companies  Act,  1862, 
to  make  an  order  for  the  return  of  the  dividend ;  but  that  it  was 
necessary  for  the  official  liquidator  to  file  a  bill  for  that  purpose.  The 
official  liquidator  appealed  from  this  decision. 

Cotton,  Q.  C.,  and  Higgins,  for  appellant. 

The  declaration  of  the  dividend  was  both  in  violation  of  the  articles 
and  delusive,  amounting  to  a  return  of  part  of  the  capital.  Table  A  of 
the  Companies  Act,  1862,  which  was  adopted  by  the  compan}',  forbids 
pa}'ment  of  dividend  out  of  capital,  and  the  5th  clause  of  the  articles 
is  still  further  restrictive,  providing  that  the  dividends  are  to  be  paid 
out  of  "  profits  in  hand."  So  far  was  the  company  from  having  profits 
in  hand  that  they  were  obliged  to  borrow  part  of  the  money  to  pay  the 
dividend  from  the  Agra  and  Masterman's  Bank.  But  the  balance 
could  not  be  called  profits  in  any  sense  until  it  was  known  whether  the 
cotton  in  the  Confederate  States  and  the  debt  of  the  Confederate 
government  could  ever  be  realized.  The  directors  were  not  justified  in 
putting  a  value  upon  what  they  could  not  realize,  and  which  it  was  very 
doubtful  whether  they  would  ever  be  able  to  realize.  At  all  events,  the 
value  put  upon  these  items  was  much  too  high.  No  cotton  in  the 
Confederate  States  or  liability  of  the  Confederate  government  bore 
such  a  high  price  in  the  market  at  that  time  as  was  put  upon  these 
items  in  the  balance  sheet. 

Glasse,  Q.  C.,  and  H.  M.  Jackson,  for  Stringer. 

There  is  nothing  in  the  articles  to  render  this  dividend  improper. 
The  5th  clause  does  not  mean  that  the  directors  were  only  to  pay 
profits  out  of  money  at  their  bankers.  They  were  to  estimate  the 
profits  in  the  usual  mercantile  way,  that  is,  by  valuation  of  the  assets 
of  the  company.  This  was  done  ;  there  was  no  concealment  on  the 
balance  sheet,  and  it  was  submitted  to  the  Agra  and  Masterman's 


STRINGER'S  CASE.  337 

Bank,  who  understood  all  the  circumstances,  and  would  not  have 
advanced  the  mone}-  unless  the  balance  sheet  had  been  honestly  made. 
And  yet  they  are  the  very  parties  who  are  now,  through  the  official 
liquidator,  complaining  of  it.  At  that  time  the  prospects  of  the  Con- 
federate cause  and  the  security  of  the  government  were  thought  good 
by  most  mercantile  men,  and  it  is  not  right  to  judge  of  the  fairness  of 
the  transaction  by  the  result  of  the  speculation. 

[The  opinion  of  Sir  C.  J.  Selwyn,*L.  J.,  is  omitted.] 

SIR  G.  M.  GIFFARD,  L.  J.  [After  deciding  that  the  Court  has 
power,  under  the  Companies  Act,  to  order  a  repayment  of  dividends 
declared  and  paid  under  a  delusive  and  fraudulent  balance  sheet :] 

Now,  with  regard  to  this  case,  the  first  important  matter  that  we 
have  to  consider  is  the  effect  of  these  articles  of  association,  and  I 
quite  agree  that  if  the  effect  of  these  articles  was  that  you  could  have 
no  division  of  dividends  until  all  the  transactions  were  wound  up,  that 
you  could  have  no  legal  dividend  except  out  of  what  is  termed  profits 
in  hand,  there  might  be  a  great  deal  to  be  said  in  this  case ;  but  if  we 
look  at  the  articles  of  association  as  compared  with  Table  A.,  it  is 
clearly  manifest  that  the  articles  of  association  amount  to  nothing  of 
the  kind.  [His  Lordship  then  referred  to  the  provisions  in  Table  A., 
and  in  the  articles  of  association,  which  have  been  before  mentioned, 
and  continued :  — ]  I  have  no  hesitation  in  saying  —  especially  if  you 
compare  the  word  "may"  in  Table  A.,  and  the  word  "shall"  in  the 
5th  clause,  and  consider  that  there  are  negative  words  in  Table  A.,  and 
that  there  are  none  in  this  clause  —  that  this  clause  was  intended 
simply  to  have  this  effect,  and  no  other,  viz.,  that  when  the  directors 
had  in  their  hands  profits  they  should  not  be  able  to  set  them  aside  for 
a  contingency  fund,  and  that  they  should  then,  at  all  events,  be  com- 
pellable  to  make  a  dividend.  It  did  not  prevent  their  making  a 
dividend  ;  but  I  agree,  it  must  be  out  of  profits,  although  those  profits 
were  not  profits  in  hand. 

Then,  when  we  come  to  the  facts  themselves  —  1  will  not  again  go 
through  them,  for  the}'  have  been  considered  at  very  considerable 
length,  not  only  in  argument,  but  also  by  my  learned  brother  —  it  was 
not  argued  or  suggested,  nor  could  it  be  argued  or  suggested,  that  it 
was  intended  that  this  thing,  though  in  terms  a  dividend,  should  cover 
what  was  not  really  a  dividend  transaction.  The  mode  in  which  the 
matter  was  done  was  fair  enough.  The  books  were  put  into  the  hands 
of  an  accountant,  calculations  were  made,  and  a  certain  conclusion  was 
arrived  at.  True  it  is,  no  doubt,  that  these  proceedings  were  full  of 
risk  ;  but  although,  on  the  one  hand,  there  might  be  a  great  loss,  every- 
one knows  that  whenever  there  was  a  success  the  profits  were  something 
very  enormous,  and  upon  the  balance  sheets  as  taken  from  the  books  it 
did  appear  that  there  was  a  profit  of  £42,000,  and  it  was  proposed  out 
of  that  to  divide  somewhere  about  £28,000,  the  profits,  I  agree,  not 
being  profits  in  hand.  The  fault  that  is  found  with  that  is,  that  the 

22 


338  STRINGER'S  CASE. 

estimate  was  an  erroneous  estimate ;  that  too  sanguine  a  view  was 
taken  of  the  prospects  of  success  ;  and  that  there  ought  to  have  been  a 
very  much  less  sum  put  upon  the  face  of  this  balance  sheet  as  assets 
than  really  was  put  there.  But  I  do  not  think  that  anyone  can  say  it 
was  not  at  this  date  possible  for  honest  persons  carrying  on  this  trade, 
entertaining  the  view  which  they  did  entertain  as  to  their  prospects, 
honestly  to  make  out  such  a  balance  sheet  as  this,  and  honestly  to 
believe  that  those  were  profits  fairly  divisible  between  them.  As  I 
Lave  said  before,  this  was  not  done  in  any  underhand  manner ;  the 
whole  thing  was  patent  and  open  ;  it  was  known,  or  capable  of  being 
known,  by  every  shareholder,  and  if  the  directors  of  the  Agra  and 
Masterman's  Bank  did  not  know  anything  about  it,  the}7  neglected 
their  duty,  and  behaved  most  shamefully  to  their  own  shareholders 
whose  money  the}'  lent ;  for  the  balance  sheet  was  put  in  their  hands, 
and  they  had  accounts  of  every  description,  and  the}*  must  have  known 
perfectly  well  that  it  was  neither  more  or  less  than  a  blockade-running 
company  ;  the  very  nature  of  the  accounts  shewed  it ;  and  so  far  from 
there  being  any  concealment,  the  balance  sheet  itself  was  put  into  the 
hands  of  the  auditors,  and  no  person  who  knew  what  the  business  of 
the  company  was  could  look  through  that  balance  sheet  without  seeing 
at  once  that  the  full  value  was  put  upon  the  Confederate  government 
debt,  and  that  the  four  ships  had  been  lost,  and  without  knowing  at 
once  that  if  things  turned  out  adversely  that  which  was  profit  might, 
from  subsequent  events,  become  a  great  loss.  Again,  this  dividend 
was  declared  in  Ma}",  1864,  and  was  actually  paid  in  June,  1864,  and 
I  cannot  forget  that  it  was  actually  paid  by  the  Agra  and  Masterman's 
Bank,  who  not  only  advanced  the  money,  knowing  the  affairs  of  the 
company,  but  who  paid  the  dividends  through  the  medium  of  cheques 
drawn  upon  them  by  the  shareholders.  I  think  it  would  be  a  gross 
injustice  if  at  this  distance  of  time,  when  a  dividend  has  been  made 
and  paid  in  this  way  so  long  ago  as  the  year  1864,  because  things 
turn  out  adversely  afterwards,  and  the  company  is  wound  up  in 
- 1867  at  the  instance  of  a  creditor,  such  a  dividend  should  be  repaid. 
I  quite  agree  when  there  has  been  what  can  be  termed  fairly  a  misap- 
propriation of  assets  as  against  a  creditor,  that  creditor  has  a  right  in 
the  winding-up  to  have  those  assets  recouped ;  but  I  cannot  think  that 
such  a  dividend  as  this  was  in  an}-  sense  a  misappropriation  as  against 
either  the  Agra  and  Masterman's  Sank  or  any  other  creditors,  or  that 
it  was  in  any  sense  delusive,  or. in  any  sense  a  fraudulent  transaction, 
or  that  it  was  any  other  transaction  than  this,  viz.,  that  mercantile  men 
who  were  engaged  in  adventures  which  might  result  in  very  great  or 
even  total  loss,  and  which  might  also  result  in  very  great  profit,  took  a 
sanguine  view  of  what  the  value  of  the  assets  was,  looking  at  what  at 
that  date  was  the  actual  profit  made,  and  acted  upon  that  bond  jftde, 
not  intending  to  defraud  in  any  way  any  person  whatever. 

Therefore,  I  am  of  opinion  that  this  appeal  must  be  dismissed  with 
costs. 


WILLIAMS   V.    BOICE.  339 


WILLIAMS  v.  BOICE. 

1884.     38  New  Jersey  Equity,  364. 

BILL  for  relief.     On  general  demurrers. 

Mr.  T.  N.  Me  Carter,  for  H.  M.  Traphagen. 

Mr.  H.  M.  T.  Beekman,  for  Tierney,  Moore,  H.  Traphagen,  and  D. 
and  A.  Post. 

Mr.  F.  Me  Gee,  for  Clark  and  Murray. 

Mr.  W.  B.  Williams,  inpro.pers. 

THE  CHANCELLOR. 

The  bill  is  filed  by  the  receiver  of  the  City  Bank  of  Jersey  City 
against  a  number  of  persons  to  recover  dividends  paid  to  them  or  those 
whose  personal  representatives  they  are,  on  and  after  Januarj*  3d, 
1876,  out  of  the  assets  of  the  bank,  on  its  stock  held  by  them.  The 
bank  was  incorporated  under  the  act  of  the  legislature  of  this  state  en- 
titled "  An  act  to  authorize  the  business  of  banking."  The  amount  of 
its  capital  stock  was  $100,000,  all  of  which  was  subscribed  for,  but 
only  fifty  per  cent,  of  it  was  called  for  or  paid  in.  It  began  business 
January  2d,  1872,  and  continued  it  down  to  January  9th,  1883,  when  it 
stopped  payment  and  suspended  business.  The  next  day  it  was,  on 
proceedings  in  insolvency  in  this  court,  under  the  act  concerning  cor- 
porations, adjudged  insolvent,  and  the  complainant  was  appointed 
receiver.  The  bill  states  that  the  assets  are  insufficient  to  pa\"  the 
debts,  and  that  the  deficiency  is  about  $175,000.  It  also  states  that 
the  corporation  declared  and  paid  sundry  dividends  on  the  fifty  per 
cent,  of  capital  paid  in,  which  at  the  time  were  alleged  by  the  bank 
officers  to  be  declared  and  paid  out  of  its  earnings,  but  it  alleges  that 
those  dividends,  on  and  after  the  3d  of  January,  1876,  were  declared 
and  paid  at  times  when,  by  reason  of  losses  and  expenses  in  business 
and  diminution  of  assets  b}^  improper  and  unauthorized  acts  of  the 
officers,  the  assets  were  insufficient  to  pay  the  liabilities  to  depositors 
and  other  creditors  without  impairing  the  capital  paid  in  ;  so  that  there 
were  no  profits  at  those  times  out  of  which  to  pay  the  dividends  ;  and 
that  so  far  as  they  were  actually  paid  the}'  were  paid  out  of  the  capital 
paid  in  ;  that  because  of  the  deficiency,  which  is  about  $125,000,  after 
apph'ing  the  amount  of  the  capital  not  paid  in,  the  dividends  so  declared 
and  paid  are  subject  to  recall  from  those  who  received  them  or  their 
personal  representatives.  The  amount  of  those  dividends  is  far  less 
than  the  amount  of  the  deficienc}1.  The  bill  is  filed  against  those  of 
the  stockholders  who  received  the  dividends  and  who  are  still  living, 
except  those  who  have  repaid  them  or  are  out  of  the  jurisdiction,  and 
against  the  personal  representatives  of  those  who  are  dead,  except 
where  they  died  insolvent.  The  demurrants  are  Herbert  R.  Clarke, 
Charles  H.  Murray,  Daniel  T.  Moore,  Henry  M.  Traphagen,  Henry 
Traphagen,  Myles  Tierney,  and  David  Post  and  Albert  Post. 


340  WILLIAMS  V.   BOICE. 

The  principal  grounds  taken  by  the  counsel  of  the  demurrants  are 
that  the  bill  cannot  be  maintained,  because  the  defendants  are  not 
liable  to  the  suit,  inasmuch  as  the  legislature  has  provided  that  the 
directors  shall  be  liable  to  repay  dividends  not  declared  out  of  the 

X  profits  of  a  corporation  ;  that  the  bill  is  multifarious  ;  that  the  remedy, 
if  it  exists  against  the  defendants,  is  at  law  and  not  in  equity  ;  that  if 
this  suit  can  be  maintained,  the  allegation  that  the  payment, of  the 
^dividends  impaired  the  capital  paid  in  is  not  sufficient ;  and  that  it  is 
not  alleged  that  there  were  not  profits  out  of  which  to  pay  the  divi- 
dends ;  that  there  is  no  allegation  that  any  of  the  existing  debts  or  liabil- 
/~  ities  existed  at  the  time  of  the  payment  of  the  dividends  ;  that  there  is 
no  allegation  that  there  were  not  enough  assets  to  pay  the  then  exist- 
ing debts  at  the  times  of  the  payment  of  the  dividends,  and  that  there 
is  no  averment  that  there  are  not  now  assets  enough  to  pay  the  debts 
which  have  been  proved  in  the  insolvency  proceedings. 

It  is  undeniably  true,  as  a  general  proposition,  that  stockholders  are 

(liable  in  equity  to  repay,  for  the  benefit  of  the  creditors  of  the  corpora- 
tion, money  which  has  been  paid  to  them  out  of  the  capital  stock.  This 
is  not  based  on  any  statute,  but  upon  the  equitable  ground  that  the 
stock  is  regarded  as  a  trust  fund  for  all  the  debts  of  the  corporation, 
and  no  stockholder  can  entitle  himself  to  any  dividend  or  share  of  it 
until  all  the  debts  are  paid.  /Story  Eq.  Jur.  §  1252.  And  the  remedy 
is  in  equity  and  not  at  law.  The  truth  of  the  proposition  as  a  general 
one  is  not  denied,  but  it  is  insisted  that  by  force  of  our  statute  con- 
cerning corporations  the  liability  has  in  this  state  been  transferred  from 
the  stockholders  who  may  be,  and  most  often  are,  ignorant  of  the  true 
condition  of  the  corporation  when  the  dividend  is  paid,  to  the  directors 
who  do  know  it,  and  who  are  the  persons  really  in  fault.  By  the 
seventh  section  of  that  act  it  is  provided  that  it  shall  not  be  lawful  for 
the  directors  of  any  bank  or  moneyed  or  manufacturing  corporation  in 
this  state,  or  corporation  organized  under  that  act,  to  make  dividends, 
except  from  the  surplus  or  net  profits  arising  from  the  business  of  the 
corporation,  nor  to  divide,  withdraw,  or  in  any  way  pay  to  the  stock- 
holders, or  any  of  them,  any  part  of  the  capital  stock  of  the  corporation, 
or  to  reduce  the  capital  stock  except  according  to  that  act,  without  the 
consent  of  the  legislature,  and  that  in  case  of  any  violation  of  the  pro- 
visions of  that  section  the  directors  under  whose  administration  it  may 
happen,  shall,  in  their  individual  and  private  capacities,  jointly  and 
severally  be  liable,  at  any  time  within  the  period  of  six  years  after 
paying  any  such  dividend,  to  the  corporation,  and  to  the  creditors 
thereof,  in  the  event  of  its  dissolution  or  insolvency,  to  the  full  amount 
of  the  dividend  made  or  capital  stock  so  divided,  withdrawn,  paid  out 
or  reduced,  with  legal  interest  from  the  time  the  liability  accrued; 
provided,  that  any  of  the  directors  who  may  have  been  absent  when 
the  act  was  done  or  resolution  passed,  or  who  may  have  dissented  from 
it  at  the  time,  may  exonerate  themselves  from  liability  by  causing  their 
dissent  to  be  entered  at  large  on  the  minutes  of  the  directors  at  the 


WILLIAMS   V.   BOICE.  341 

time  or  immediately  after  they  have  notice  of  it,  and  causing  their  dis- 
sent to  be  published  in  a  newspaper  of  the  county  where  the  corpora- 
tion has  its  office  or  place  of  business.  Rev.  p.  178.  The  statutory 
liability  thus  created,  however,  does  not  exonerate  the  stockholders 
who  have  received  the  money  from  liability  to  repay  it  for  the  benefit 
of  the  creditors.  The  statute  does  not  transfer  the  liability  from  the 
stockholders  to  the  directors,  but  it  creates  a  liability  on  the  part  of 
the  latter  in  favor  of  the  corporation  or  the  creditors  in  certain  events. 
The  section  is  penal,  and  so  far  as  it  gives  a  remedy  to  the  corporation 
it  is  for  the  benefit  of  stockholders  as  well  as  creditors.  So  far  as  the 
latter  are  concerned,  it  provides  what  may  be  an  easier  and  more  eco-  ^^ 
nomical  mode  of  recovery  than  suit  against  the  stockholders.  It  might 
be  very  difficult  to  reach  the  stockholders  (there  might  be  a  very  large 
number  of  them,  and  they  might  be  greatty  scattered,  or  might  be  all 
non-residents),  while  it  might  not  be  difficult  or  not  so  difficult  to  reach 
the  directors.  The  stockholder  who  has  received  part  of  the  capital  by 
way  of  dividend,  without  legislative  authorit}*,  has  no  right  to  it  as 
against  the  creditors  of  the  corporation,  and  no  wrong  is  done  him  if 
he  be  compelled  to  repay  it  when  it  is  required  to  pay  the  debts  of  the 
corporation.  He  or  those  from  or  under  whom  he  derives  his  title  to 
his  stock,  placed  that  monej'  in  the  treasury  of  the  corporation  to 
answer  for  its  debts  if  necessary,  and  it  was  devoted  to  that  object 
so  long  as  it  might  be  required  for  the  purpose.  If  he  withdraws  or 
receives  it  back  again,  except  where  the  amount  of  the  stock  is  reduced 
according  to  law,  it  will  in  his  hands  be  subject  to  that  trust,  the  trust  y 
for  the  payment  of  the  debts  of  the  corporation  if  needed  for  the  pur-  ' 
pose.  The  directors  who  declare  the  dividend  maj'  personalh*  profit 
but  little  comparatively  from  the  dividend,  and  yet  under  the  above- 
quoted  section  of  the  act  they  ma}-  be  compelled  to  pay  the  whole  of  it 
to  the  corporation  or  creditors  out  of  their  own  pockets.  But  that  pro- 
vision does  not,  either  in  terms  or  bj'  implication,  exonerate  the  stock- 
holders, though  a  recovery  of  the  money  from  the  directors  would  in 
fact  exonerate  them.  The  directors  are  their  agents,  and  if  redress 
has  been  obtained  b}r  recourse  to  the  agent,  it  would  of  course  exoner- 
ate the  principal.  The  remedy  given  by  the  statute  is  cumulative. 
The  legislature  does  not  say  that  the  stockholders  shall  be  at  liberty  to 
keep  the  money,  and  that  the  creditors  must  have  recourse  to  the 
directors  alone.  The  bill,  it  may  be  remarked,  alleges  that  the  stock- 
holders who  received  the  dividends  had  notice  of  the  fact  that  the  / 
money  was  part  of  the  capital  paid  in,  and  also  of  the  fact  that  without/ 
that  mone}-  there  was  a  deficiency  of  assets  to  pay  the  debts. 

Nor  is  the  criticism  that  the  bill  does  not  state  that  there  were  no 
profits  out  of  which  to  pay  the  dividends,  well  founded.  The  bill  states 
that  there  was  a  deficiency  of  other  assets  besides  the  money  divided, 
to  pay  the  debts.  It  states  that  when  the  dividends  were  declared  the 
assets  were,  by  reason  of  losses  and  expenses  in  business  and  diminu- 
tion by  improper  and  unauthorized  acts  of  the  officers,  insufficient  to 


342  WILLIAMS   V.   BOICE. 

pay  the  liabilities  of  the  bank  to  depositors  and  other  creditors  without 
impairing  the  $50,000  of  capital  paid  in,  so  that  there  were  no  profits  at 
such  times  out  of  which  to  pay  those  dividends,  and  so  far  as  they 
were  paid  they  were  paid  out  of  the  capital  paid  in. 

Another  objection  is  that  there  is  no  allegation  that  any  of  the  debts 
which  now  exist  were  debts  or  liabilities  at  the  time  of  the  payment  of 
the  dividends.  The  bill  makes  no  such  statement,  nor  is  the  fact  fairly 
f  to  be  deduced  from  its  statements.  Although  there  are  cases  in  which 
it  has  been  said  that  recovery  can  only  be  had  in  cases  of  this  kind  by 
creditors  whose  debts  existed  at  the  time  of  the  withdrawal  of  the 
funds,  that  view  is  not  to  be  adopted.  The  distinction  is  not  well 
founded.  The  capital  of  a  corporation  is  a  fund  pledged  for  the  pay- 
ment of  its  debts.  Each  person  who  gives  credit  to  it  does  so  in  the 
confidence  that  that  fund  exists  for  his  protection  and  security  against 
loss.  If  the  stockholders  secretly  withdraw  it,  under  the  false  pretence 
of  dividends  of  profits  when  there  are  none,  it  is  obvious  that  as  great 
a  wrong  ma\-  be  done  to  future  creditors  as  to  existing  ones.  In  either 
case  the  stockholders  hold  a  part  of  that  fund,  which  is  pledged  to  the 
payment  of  the  creditors.  The  injury  to  the  existing  creditor  is  obvi- 
ous. That  to  the  future  creditor  is  the  same  ;  for  the  stockholder  holds 
out  to  him  that  the  capital  is  of  the  nominal  amount,  while  in  fact  he  has 
secretly  withdrawn  part  of  it.  If  all  who  should  become  creditors  after 
the  withdrawal  had  notice  of  the  fact  that  the  capital  had  been  reduced 
—  that  the  dividend  had  been  paid  out  of  the  capital  —  then  the  dis- 
tinction might  perhaps  be  maintained,  but  the}'  not  on\y  have  no  such 
notice,  but  in  fact  are  led  to  believe  that  the  capital  is  what  it  uominally 
purports  to  be. 

The  objection  that  the  bill  does  not  state  that  there  were  not  enough 
assets  to  pa}r  the  debts  when  the  dividends  were  made  is  founded  on  a 
misapprehension  as  to  the  statements  of  the  bill,  for  the  allegation  is 
distinctly  made. 

Nor  is  the  objection  that  it  does  not  appear  that  there  are  not  enough 
assets  now  to  pay  the  debts  which  have  been  proven,  tenable.  It  does 
not  appear  what  debts  have  been  proven,  and  it  cannot  appear  until 
after  this  court  shall  have  made  a  decree  of  distribution  what  debts 
will  be  allowed.  For  the  purposes  of  this  suit,  it  is  not  necessary  to 
make  any  allegation  on  that  head.  After  applying  the  assets  and 
capital  not  paid  in  to  the  payment  of  the  debts,  there  will,  as  before 
stated,  remain  a  deficiency  of  about  $125,000.  The  whole  of  the  divi- 
dends declared  on  and  after  January  3d,  1876,  amounts  to  about 
$15,000. 

Nor  is  the  objection  of  multifariousness  well  taken.  The  stockhold- 
ers who  are  called  upon  to  make  contribution  are  necessary  parties, 
and  should  all  be  made  parties  unless  good  reason  exists  to  the  con- 
trary. In  Wood  v.  Dummer,  3  Mason  308,  which  was  a  suit  by 
creditors  of  a  bank  against  some  of  the  stockholders  for  payment  of 
debts,  on  the  ground  of  a  fraudulent  division  of  the  capital  stock  of  the 


WILLIAMS   V.   BOICE.  343 

bank  by  the  stockholders,  the  objection  of  non-joinder  was  made,  and 
it  was  insisted  that  all  the  stockholders  ought  to  be  made  parties  de- 
fendant, because  all  were  liable  to  contribute.  The  objection  was 
overruled  on  the  ground  that  it  would  be  impracticable  to  bring  in  all 
the  stockholders.  In  Vose  v.  Grant,  15  Mass.  505,  and  Spear  v. 
Grant,  16  Mass.  9,  the  stockholders  of  an  incorporated  bank,  after  the 
expiration  of  its  charter,  had  made  dividends  of  the  capital  stock 
among  themselves,  so  that  there  were  not  enough  corporate  funds  left 
to  pay  its  debts,  and  a  creditor  brought  suit  as  for  a  tort  against  one  of 
them  who  had  received  his  proportion  of  the  dividends.  It  was  held 
that  he  could  not  maintain  the  suit  at  law,  but  that  a  court  of  chancery, 
where  suit  could  be  brought  by  or  in  behalf  of  all  the  creditors  against 
all  the  stockholders,  would  be  the  appropriate  forum.  It  is  very  clear 
that  there  is  no  ground  whatever  for  the  objection  of  multifariousness. 

It  remains  to  consider  another  question  not  raised  on  the  argument, 
viz.,  whether  limitation  from  lapse  of  time,  in  analog}*  to  the  bar  of  the 
statute  of  limitations,  can  avail  the  defendants.  I  am  of  opinion  that 
it  cannot.  When  it  is  considered  that  the  withdrawal  of  part  of  the 
capital,  under  pretence  of  a  division  of  profits  where  there  are  no  profits 
to  divide,  is  a  fraud  on  the  creditors,  it  will  be  seen  at  once  that  a  plea 
of  such  limitation  could  not,  except  under  peculiar  circumstances,  be 
successfully  interposed  to  bar  the  claim  of  creditors  for  relief  against 
the  doers  of  or  participants  in  the  fraud.  The  case  is  very  like  that  of 
a  trustee  secretly  applying  the  trust  property  to  his  own  use.  He  can- 
not thus  protect -himself  against  the  claim  of  his  cestui  que  trust.  In 
Wood  v.  Dummer,  ubi  supra,  this  question  was  considered  by  Judge 
Story,  who  said  that  the  rights  of  the  plaintiffs  in  that  case  accrued  as 
against  the  defendants  within  six  years ;  for  until  a  refusal  of  payment 
by  the  bank,  followed  by  an  inability  to  pay  on  its  part,  there  was  no 
cause  of  proceeding  in  equity  against  the  stockholders ;  that  in  cases 
not  of  constructive,  but  of  express  trusts,  so  long  as  the}*  are  not  en- 
countered by  an  adverse  possession  and  denial  of  right,  the  statute  of 
limitations  does  not  begin  to  run.  He  added  that  he  should  have  very 
great  difficult}*  in  allowing  a  bar  of  the  statute  of  limitations  to  operate 
in  a  case  of  this  nature,  unless  where  the  circumstances  of  negligence 
on  the  one  side  and  of  positive  denial  of  right  on  the  other  were  very 
cogent.  In  the  case  before  me  the  bill  was  filed  June  20th,  1883.  The 
complainant  seeks  to  recover  dividends  declared  on  and  after  January 
3d,  1876.  The  bank  stopped  payment  January  9th,  1883,  and  the 
receiver  was  appointed  the  next  day.  The  defendants  could  not  avail 
themselves  of  the  plea  of  limitation  from  lapse  of  time.  The  demurrers 
will  be  overruled,  with  costs. 


344  BRIGHT  V.   LORD. 


BRIGHT  v.  LORD. 

1875.     51  Indiana,  272. 

From  the  Marion  Superior  Court. 

J.  E.  McDonald,  J.  M.  Butler,  H.  W.  Harrington  and  H. 
Francisco,  for  appellant. 

N.  B.  Taylor,  F.  Hand,  E.  Taylor,  B.  Harrison,  C.  C.  limes 
and  W.  H.  H.  Miller,  for  appellees. 

BIDDLE,  C.  J.  —  The  facts  averred  in  the  appellant's  complaint  are 
as  follows : 

That  on  the  1st  day  of  April,  1873,  the  appellant  entered  into  a 
provisional  contract  with  John  M.  Lord,  John  Lord,  and  Charles  M. 
Lord,  by  which  the\T  agreed  to  sell  to  the  appellant  five  hundred  and 
twenty  shares  of  the  capital  stock  of  the  Indianapolis  Rolling  Mill 
Company,  of  fifty  dollars  each,  for  the  sum  of  thirteen  thousand  dol- 
lars, at  the  option  of  the  appellant,  to  be  by  him  taken  at  any  time  on 
or  before  the  18th  day  of  June,  1873,  to  be  paid  for  on  delivery ;  that 
before  the  expiration  of  said  option,  on  the  14th  da}T  of  June,  1873, 
the  said  Lords,  for  the  consideration  of  one  hundred  dollars,  to  them 
paid  by  appellant,  extended  the  time  of  said  provisional  contract  for 
thirty  days,  within  which  time  the  appellant  paid  the  Lords  thirteen 
thousand  dollars,  and  received  the  stock,  which,  on  the  16th  day  of 
July,  1873,  was  duly  transferred  to  him  on  the  books  of  the  Rolling 
Mill  Company ;  that  the  appellant  purchased  the  stock  without  the 
reservation  of  any  dividends  or  earnings,  and  with  all  the  benefits  and 
interests  that  pertain  to  the  same ;  that  on  the  3d  of  July,  1873,  the 
board  of  directors  of  the  Rolling  Mill  Company  declared  a  dividend  on 
the  capital  stock  of  the  company  of  five  per  cent.,  to  be  paid  on  the  1st 
day  of  August  ensuing,  amounting,  on  the  stock,  etc.,  purchased  by 
the  appellant,  to  thirteen  hundred  dollars,  which  the  appellant  claims ; 
that  the  company  was  about  to  pa}T  the  said  thirteen  hundred  dollars  to 
the  Lords,  who  also  claimed  the  amount.  Prayer  to  restrain  the  corn- 
pan}"  from  paying  the  thirteen  hundred  dollars  to  the  Lords,  to  decree 
the  amount  to  the  appellant,  and  for  general  relief. 

The  Rolling  Mill  Company  was  served  with  process,  but  made 
default. 

Interlocutory  proceedings  were  had  after  complaint  and  before 
answer,  but  as  no  question  is  raised  upon  them,  they  are  not  stated. 

The  Lords  answered  b}'  a  general  denial.  The  case  was  submitted 
to  the  court  for  trial,  which  resulted  in  a  finding  for  the  defendants. 
Motion  for  a  new  trial  overruled.  Exception.  Appeal  to  the  general 
term,  where  the  judgment  was  affirmed,  from  which  an  appeal  was 
taken  to  this  court. 

The  only  error  assigned  here  is  in  affirming  the  judgment  at  the 


BRIGHT  V.   LORD.  345 

general  term.     The  evidence  is  before  us,  and  we  think  it  fairly  proves 
the  allegations  in  the  complaint. 

Was  the  appellant  entitled  to  the  dividend  declared  while  it  was 
optional  with  him  to  purchase  or  refuse  the   stock,   and  before  the    /.' 
purchase  was  completed?    This  is  the  sole  question  in  the  case. 

Where  a  stockholder  in  a  railroad  assigned  and  transferred  his  stock 
after  two  years  interest  had  accrued,  which,  by  a  resolution  of  the 
company  was  payable  annually,  and  had  been  carried  to  the  account  of 
the  stockholder,  it  was  held  that  the  interest  did  not  pass  by  the 
assignment  of  the  stock;  the  court  stating  the  rule  to  be,  that  "the 
interest  follows  the  principal,  as  an  incident  to  it,  so  long  as  it  remains 
an  incident ;  but  when  it  is  separated  and  set  apart  from  the  principal 
by  actual  payment,  or  by  being  carried,  when  due,  to  the  credit  of  the 
owner  of  the  principal  in  his  account  with  the  debtor,  and  this  in  pur- 
suance of  a  provision  in  the  contract  creating  and  defining  the  principal 
debt,  it  is  so  separated  and  disjoined  from  the  principal  as  to  cease  to 
be  an  incident  to,  and  does  not  follow  it."  The  City  of  Ohio  v.  The 
Cleveland,  etc.,  R.  R.  Co.,  6  Ohio  St.  489.  And  in  the  case  of  Jones 
v.  The  Terre  Haute  &  Richmond  R.  R.  Co.,  29  Barb.  353,  it  was 
held,  that  "  where,  by  a  resolution  of  the  board  of  directors,  a  dividend 
is  made  to  the  persons  then  holding  stock,  without  any  discrimination, 
out  of  the  surplus  earnings  of  the  corporation  for  a  given  period,  pay- 
able at  a  future  day,  aJL  who  are  stockholders  on  the  books  of  the 
gompany,  at  the  time  the  dividend  is  declared,  are  entitled  to  share  — 
therein."  This  case  seems  to  us  as  being  remarkably  similar  to  the 
one  before  us.  It  has  also  been  held  that  the  purchaser  of  a  share  of 
stock  in  a  corporation  has  the  right  to  receive  all  future  dividends, 
from  whatever  source  the  profits  maj-  arise,  provided  he  remain  a 
member  of  the  corporation  until  a  dividend  is  made.  March  v.  The 
Eastern  R.  R.  Co.,  43  N.  H.  515. 

The  same  rule  was  recently  held  in  England.  The  testatrix  was 
owner  of  certain  shares  in  the  South  Australian  Banking  Compan}-. 
On  the  7th  day  of  June,  1865,  dividends  were  declared  by  the  com- 
pany, payable  on  the  15th  of  July,  1865,  and  on  the  15th  of  January, 
1866.  On  the  31st  of  December,  the  testatrix  died,  having  made  her 
will,  devising  the  stock,  in  1863. 

The  question  arose  as  to  whether  the  dividend  due  on  the  15th  of 
January,  1866,  passed  to  the  devisee,  or  belonged  to  her  residuary 
estate. 

Sir  W.  Page  Wood,  V.  C.,  said :  "As  soon  as  the  dividend  was 
declared,  although  payment,  for  convenience  of  the  company,  was 
postponed  until  the  following  Januar}',  from  that  moment  the  testatrix  / 
became  entitled  to  it,  although  she  could  not  have  then  recovered  it, 
and  it  would  have  passed  to  her  legatee  had  she  specifically  bequeathed 
it."  De  G-endre  v.  Kent,  4  Equity  Cases,  283. 

In  an  American  case,  still  later,  it  was  held  that  a  dividend  belongs 
to  the  owner  of  the  stock,  at  the  time  the  dividend  is  actually  declared, 


346  BRIGHT   V.   LORD. 

and  that  dividends  made  to  the  stockholders  after  the  death  of  a 
testator  belong  to  the  widow  who  owns  the  stock,  but  if  made  before, 
although  payable  afterwards,  they  will  pass  by  the  devise.  Brundage 
v.  Brundage,  65  Barb.  397. 

In  support  of  this  general  principle,  see,  also,  In  re  Foote,  22  Pick. 
299  ;  Clapp  v.  Astor,  2  Edwards  Ch.  379  ;  Phelps  v.  Farmers  and 
Mechanics  Bank,  26  Conn.  269  ;  Hyatt  v.  Allen,  56  N.  Y.  553. 

From  the  authorities  and  upon  principle,  we  think  the  rule  may  be 
deduced,  that  whoever  owns  the  stock  in  a  corporation  at  the  time  a 
1  dividend^is_declared  o^nn  thft  Hivirlpnd  al^p ;  and  a  sale  of  thejstock 
afterwards  will  not  carry  thediyjidend  with_Jt.  though  it  ma}7  notTTJe 
paid,  or  payable,  until  atteTTihe  saleT  The  same  rule  governs  in  the 
sale- e£-bo mis  "or  other  securities,  where  the  interest  is  payable  at 
stated  periods,  as  upon  coupon  bonds  ;  but  when  the  interest  is  accruing 
from  day  to  day,  whatever  is  due  on  the  bond  or  other  security  at  the 
time  it  is  sold,  will  pass  with  it.  The  reason  of  the  distinction  is,  that 
when  the  interest  accrues  from  day  to  day,  it  is  divisible  and  payable 
at  any  time ;  but  when  the  interest  is  payable  at  stated  periods,  no  part 
of  it  is  due  until  the  period  arrives  ;  and  in  the  earnings  or  profits  of 
stocks,  it  is  impossible  to  know  what  amount  is  due  until  the  dividend 
is  declared. 

In  the  case  before  us,  Bright  did  not  become  the  owner  of  the  stock 
until  the  16th  da}*  of  July,  1873.  Up  to  that  time,  it  was  optional 

(vith  him  to  purchase  it  or  refuse  it.  The  Lords  would  have  had  no 
•emedy,  if  Bright  had  refused  the  stock,  and  Bright  would  have  suffered 
10  loss,  except  the  consideration  he  had  paid  for  the  option,  and 
ncurred  no  liability,  whatever.  The  dividend  had  been  declared  on 
he  3d  da}-  of  July,  1873,  and  the  amount  fixed,  by  which  it  became 
,he  property  of  the  Lords  at  that  time,  although  not  payable  until  the 
ist  day  of  August  ensuing ;  and  there  is  nothing  in  the  complaint  to 
nform  us  but  what  Bright  knew  all  these  facts  at  the  time  he  com- 
pleted the  purchase  of  the  stock.  At  least,  ordinary  business  diligence 
would  have  informed  him  of  the  facts,  if  he  did  not  actually  know  them, 
and  then  he  could  have  purchased  the  stock,  as  it  then  stood,  or  not,  at 
his  option.  As  he  has  not  averred  in  his  complaint  that  he  did  not  know 
these  facts,  and  could  not  have  ascertained  them  by  ordinary  business 
diligence,  he  must  be  held  to  have  known  them,  and  to  have  made  his 
purchase  accordingly. 
The  judgment  is  affirmed. 


TAFT  V.   HARTFORD,  PROVIDENCE,   AND  FISHKILL   R.   CO.        347 
TAFT  u.  HARTFORD,  PROVIDENCE,  &   FISHKILL  R.  CO. 

1866.     8  Rhode  Island,  310.1 

Assumpsit  for  the  recovery  of  the  amount  of  dividends,  at  ten  per 
cent,  per  annum,  for  eight  years,  upon  402  shares  of  the  capital  stock 
of  the  defendant  corporation,  (as  the  plaintiff  argues,)  "  not  as  arrears 
of  dividends  unpaid,  but  as  their  equivalent,  as  damages,  for  the  non- 
performance  of  the  defendants'  contract  that  they  should  be  paid."  The 
case  was  submitted  upon  the  pleadings  and  a  statement  in  writing  of 
the  facts. 

On  Oct.  25,  1854,  the  corporation  had  only  common  stock.  At  a 
meeting  of  the  stockholders  held  that  day,  acting  under  an  amendment 
to  the  charter,  the  following  votes  were  passed  :  — 

"  Voted,  That  five  thousand  shares  of  one  hundred  dollars  each  be  and 
the  same  are  hereby  created  and  added  to  the  capital  stock  of  this  com- 
pany, and  that  the  same  be  a  preferred  and  guaranteed  stock,  entitling  » 
the  holder  thereof  to  preferred  and  gnnrantp.pd  dividends  eq'i«l  to  ten_  I 
per  cent,  per  annum,  payable  semi-ajinnRlly-  And  no  dividend  shall 
be  paid  on  the  remaining  shares  of  said  stock  until  such  semi-annual 
dividends,  at  the  rate  of  ten  per  cent,  per  annum,  above  mentioned, 
shall  first  have  been  paid  on  said  guaranteed  or  preferred  stock.  Pro- 
vided, that  said  preferred  stock  shall  be  issued  on  the  express  con- 
dition following,  viz.  :  that  at  any  time  after  the  first  day  of  April, 
1860,  or  after  the  first  day  of  April,  1865,  as  the  directors  shall  decide, 
said  company  reserve,  and  shall  have  the  right  to  redeem  and  extin- 
guish the  whole  or  any  part  of  said  preferred  stock,  by  paying  to  the 
holder  thereof,  on  the  books  of  said  company,  the  par  value  of  one  hun- 
dred dollars  for  each  and  every  share  held  b}*  him,  her  or  them,  and 
that,  at  any  time  after  the  time  or  times  fixed  by  the  directors,  any 
holder  of  said  preferred  stock  shall  have  the  right  to  demand  and  re- 
ceive for  the  whole  or  any  part  thereof,  one  hundred  dollars  for  each 
share,  and  all  right  to  further  dividends  on  said  preferred  stock,  that 
shall  have  been  so  paid  for  or  redeemed,  shall  thereafter  cease  and 
determine. 

' '  Voted,  That  the  guaranteed  dividend  of  ten  per  cent,  on  such  pre- 
ferred stock,  to  all  subscribers  who  pay  for  the  same  in  money  previ- 
ous to  said  first  da)"  of  April  next,  shall  begin  to  accrue  on  and  from 
the  da)*  when  the  money  for  said  stock  shall  have  been  paid  to  said 
company." 

Subsequently  a  circular  was  issued  offering  the  new  stock  to  subscrib- 
ers, and  containing,  inter  alia,  the  following  statement :  — 

"  Guaranteed  dividends,  at  the  rate  of  ten  per  cent,  a  year,  will 
commence  from  the  time  when  the  money  is  actually  paid  for  said  pre- 
ferred stock." 

1  Statement  abridged.    Portions  of  argument  omitted.  —  ED. 


348        TAFT  V.   HARTFORD,   PROVIDENCE,   AXD   FISHKILL   R.   CO. 

Subscribers  for  the  new  stock  received  certificates  in  the  following 
form  :  — 

BE  IT  KNOWN,  That  entitled  to  shares  in  the  preferred 

and  guaranteed  stock  of  the  HARTFORD,  PROVIDENCE  AND  FISHKILL 
RAILROAD  COMPANY,  on  which  one  hundred  dollars,  on  each  share, 
have  been  paid,  subject  to  the  provisions  of  the  charter,  and  the  by- 
laws of  the  corporation,  the  same  being  entitled  to  preferred  and  guar- 
anteed dividends,  at  the  rate  of  TEN  PER  CENT  per  annum,  payable 
semi-annually,  before  any  dividend  shall  be  paid  on  other  stock  of  said 
company ;  and  being  redeemable  by  the  company,  and  the  par  value 
thereof  demandable  b}*  the  holder  of  the  same,  from  the  compan}*,  at 
any  time  after  April  1st,  1865. 

No  dividends  were  earned  by  the  corporation. 

Durfee  and  Eames,  for  plaintiff. 

The  word  guarantee,  though  most  usually  employed  to  designate  a 
contract  by  which  one  person  becomes  answerable  for  another,  is  not 
unfrequentty  employed  to  express  an  unusually  emphatic  assurance  of 
a  part}'  in  his  own  behalf,  as  in  Section  4,  Article  IV.,  of  the  Federal 
Constitution.  Will  the  Court  say  that  a  word  which  is  constantly 
selected  by  the  company  to  characterize  and  denominate  the  subject  to 
which  it  applies,  is  simply  tautological  ? 

Could  the  company  have  supposed  that  the  subscribers  for  stock 
would  expurgate  or  ignore  the  word  "  guaranteed,"  or  would  interpo- 
late after  it,  the  incompatible  qualification,  "  if  the  net  earnings  of  the 
road  suffice  for  the  payment  of  such  dividends?" 

Suppose  that,  for  ten  years  after  the  issue  of  the  new  stock,  the  com- 
pany barely  make  enough  to  pay  interest  and  expenses  ;  and  that  at  the 
end  of  ten  years  they  redeem  the  new  stock  and  the  road  becomes 
prosperous.  According  to  the  view  which  we  are  combating,  the  sub- 
scribers are  not  entitled  to  dividends  for  the  ten  years  that  are  gone, 
because  none  were  earned  ;  and  they  are  not  entitled  to  dividends  for 
the  future,  because  they  have  ceased  to  be  stockholders. 

And,  as  to  the  word  "  dividends,"  we  maintain  that  it  was  not  used 
by  the  parties  in  its  ordinary  sense,  as  signifying  a  certain  proportion 
of  the  earned  profits  of  the  road ;  but  as  signifying  that  the  holders 
should  be  entitled  to  receive,  in  value,  what  was  equivalent  to  ten  per  cent 
on  the  amount  which  they  had  paid  from  the  time  of  payment;  .  .  . 
The  expression  is  equivalent  to  the  word  interest  at  the  fixed  rate. 

But  even  if  the  word  "dividends,"  as  used  in  connection  with  the 
word  "guaranteed,"  means,  in  its  true  import,  dividends  out  of  the 
net  earnings  of  the  road,  as  claimed  by  the  defendants,  the  defendants 
do  not  advance  a  step  in  the  defence  to  the  action.  If  the  dividends 


TAFT  V.   HARTFORD,   PROVIDENCE,  AND   FISHKILL  R.   CO.       349 

were  to  be  paid  out  of  the  net  earnings  of  the  road,  they  were,  never- 
theless, guaranteed  or  stipulated  to  be  paid  out  of  such  net  earnings. 
In  other  words,  the  guaranty  was,  that  the  net  earnings  should  be  suf- 
ficient to  pay  a  dividend  equal  to  ten  per  cent  per  annum ;  and  if  the 
result  was  that  such  earnings  were  insufficient  for  that  purpose,  there 
was  none  the  less  a  breach  of  the  guaranty,  on  the  part  of  the  defend- 
ants, that  they  should  be  sufficient,  for  which  an  action  will  lie  to  recover, 
by  way  of  damages,  the  amount  which  the  plaintiff  would  have  received 
if  such  net  earnings  had  been  sufficient  to  pay  the  stipulated  ten  per 
cent. 

........ 

Currey  (Blake  with  him),  for  defendants. 

[Argument  omitted]. 

BRADLEY,  C.  J.  The  defendant  corporation  was  authorized,  by  an 
amendment  to  its  charter,  to  issue  five  thousand  shares  of  additional 
stock,  and  to  provide  that  the  same  be  "  a  preferred  and  guaranteed 
stock,  entitling  the  holder  to  preferred  and  guaranteed  dividends  equal 
to  ten  per  cent,  per  annum,  payable  semi-annually."  Pursuant  to  this 
authority  this  stock  was  issued,  and  the  certificates  entitled  "  preferred 
and  guaranteed  ten  per  cent,  stock,"  contained  the  expression,  "  the 
same  being  entitled  to  preferred  and  guaranteed  dividends  at  the  rate 
of  ten  per  cent,  per  annum,  payable  semi-annually,  before  any  dividend 
shall  be  paid  on  any  other  stock  in  said  company."  This  suit  is  brought 
to  compel  the  company  to  pay  the  plaintiff,  holding  a  portion  of  said 
stock,  a  sum  of  money  equal  to  ten  per  cent,  per  annum  on  his  stock, 
though  no  dividends  have  been_garned . 

"~  The  question  presented  is,  what  is  the  meaning  and  engagement  of 
the  company,  as  expressed  in  these  words?  The  relations  between 
these  parties  are  obviously  those  between  shareholders  and  the  corpora- 
tion. The}-  are  not,  on  the  face  of_the_contrac.t.,  thoaejxf  creditor  and 
debtor.  ^Tc6TpuriiUoTr~may  issuelionds  or  other  obligations  convert- 
ible at  certain  times  and  upon  certain  contingencies  into  stock.  They 
may  issue  stock,  as  in  this  case,  redeemable  at  a  certain  time  and  upon 
certain  conditions.  But  until  such  change  is  made  in  either  case,  the 
original  relation  remains.  A  holder  of  the  stock  retains  his_right  to 
share  in  the  management  of  the  corporation  and  to  participate  in  its 
profits.  He  is  not  its  creditor  by  virtue  of  this  relation.  If  he  is 
To"  be  constituted  its  creditor,  there  are  well-known  modes  and  words  by 
which  that  relation  can  be  expressed.  If,  instead  of  adopting  them,  he 
receives  a  certificate  of  stock,  and  then  claims  to  be  both  its  creditor 
and  stockholder  by  virtue  of  the  same  contract,  the  burden  is  upon  him 
to  show  that  such  anomalous  relation  exists.  The  presumptions  of  law 
and  the  usual  course  of  business  are  against  him.  In  this  case,  the 
evidence  of  the  relation  is  a  certificate  of  stock,  and  the  subject  of  the 
engagement  or  contract  is  the  dividends,  so  called,  to  be  paid  upon  it. 
A  dividend  is  money  paid  out  of  profits  b}-  a  corporation  to_itn  nhiBfl 
holders.  A  preferred  dividend  is  that  which  is  paid  to  one  class  of 
shareholders  in  priority  to  that  to  be  paid  to  another  class. 


350        TAFT   V.   HABTFOED,   PEOVIDENCE,   AND   FISHKILL   E.   CO. 

The  word  over  which  the  controversy  arises  in  this  case  is  "  guaran- 
teed." Guaranteed,  in  addition  to  preferred,  applied  to  dividends, 
means  what?  It  is  certainly  not  used  in  the  strict  and  proper  sense  of 
the  word,  for  there  is,  in  this  contract,  no  third  party  promising  to 
make  good  «,n  engagement  by  the  corporation  to  its  stockholders.  Is 
it,  on  the  one  hand,  an  instance  of  that  tautology  so  common  in  legal 
proceedings,  —  a  synonym  for  "  preferred,"  and  not  increasing  its  sig- 
nificance? Or  does  it,  on  the  other  hand,  when  it  is  added  to  the  word 
dividend,  entirely  change  its  character  and  meaning,  and  convert  a 
dividend,  which,  in  its  nature,  cannot  legally  exist  except  when  origi- 
nating in  profits,  into  a  liability  entirely  independent  of  the  pre-exist- 
ence  of  such  profits?  Or  has  it  still  a  third  signification,  by  which, 
added  to  the  idea  of  a  simple  preference  out  of  dividends,  it  shall  be 
considered  as  an  engagement  that  a  dividend,  equal  to  the  sum  of  ten 
per  cent,  per  annum,  shall  be  charged  upon  all  the  profits  which,  from 
year  to  year,  may  accrue,  thus  binding  and  pledging  the  total  sum  of  all 
the  earnings  of  the  company,  so  long  as  the  engagement  lasts,  to  the 
payment  of  a  dividend  "  equal  to,"  as  the  amended  charter  says,  — 
' '  at  the  rate  of,"  as  the  company  express  it,  —  as  much  as  ten  per  cent, 
per  annum,  if  semi-annually  paid,  would  amount  to,  and  this  amount  to 
be  paid  before  the  other  stock  receives  anything. 

Intervening  the  two  arguments  in  this  cause,  the  Court  examined, 
and  desired  the  counsel  to  examine,  be3rond  our  own  libraries,  the  de- 
cisions of  the  courts  upon  this  subject,  to  see  if  this  somewhat  anoma- 
lous expression  had  received  a  judicial  or  practical  construction.  Among 
the  emergencies  so  common  to  these  railway  companies  in  our  country, 
and  in  that  from  which  we  derive  our  language  and  so  much  of  our  law, 
we  thought  it  not  unlikely  that  similar  circumstances  had  induced  simi- 
lar contracts,  and  that  the  language  used  by  this  company,  doubtless 
under  the  advice  of  counsel,  might  have  been  taken  from  railwaj'  legis- 
lation, or  contracts  elsewhere,  and  with  a  full  knowledge  of  its  legal 
j  and  practical  meaning.  In  this  country  we  found  no  decision  throw- 
l  ing  light  on  this  question.  In  England,  however,  there  are  several. 
The  most  apt  of  these  cases  is,  perhaps,  Henry  v.  The  Great  North- 
ern Railway  Company,  3  Jurist,  part  i.  p.  1,133.  An  act  of  Parliament 
in  that  case  authorized  the  company  "  to  guarantee  the  payment  of 
dividends,"  not  exceeding  a  certain  per  cent.,  "  and  in  preference  to  the 
payment  thereof  on  other  shares."  The  question  i*  this,  as  in  the  other 
English  cases  over  similar  words,  was  between  what  we  have  indicated 
as  the  first  and  third  construction.  It  has  never  been  even  claimed  in 
the  English  courts  that  the  construction  secondly  stated  by  us,  and 
urged  by  the  plaintilf,  could  be  adopted,  and  the  court  decides  that 
these  statutes  guarantee  to  the  favored  stockholders  "  a  charge  on  all 
accruing  profits  at  the  stipulated  rates,  before  anything  is  divided  among 

I  the  ordinary  shareholders.  This  is  substantially  interest  chargeable 
exclusively  on  profits."  And  they  further  hold  that  if  the  profits, 
accrued  when  the  dividend  is  declared,  are  insufficient  to  furnish 


TAFT   V.   HARTFORD,  PROVIDENCE,   AND   FISHKILL   R.   CO.       351 

the   stipulated   amount,  the^dqficiency  is  CL^Jiarge  upon   subsequent   * 
j2£q/*fc.-    Again,  in  Crawford  v.  North  Eastern  Railway  Company, 
3  Jurist,  N.  S.  part  i.  p.  1,093,  Vice-Chancellor  Wood  says,  in  conclu- 
sion :  "  Of  course,  J  do  not  mean  to  say  that  it  is  a  guaranty  in  any 

other  sense  than  that  you_^rejg^e_p^id_t,hese_sum8  out  o£J3iiLprQfita-> 
oTtEfTcoiSpHTiy:    ThatTuftlie  only  fund  you  are  toJookJlo.    If  the  com-  ' 
pany  make  no"  profits  you  will  have  no  dividend,  but,  I  apprehend,  the 
profits  in  perpetuity."     In  Matthews  v.  Great  Northern  Railway  Com- 
pany, 5  Jurist,  N.  S.  part  i.  p.  284,  the  Vice-Chancellor  says  of  the 
term  "guaranteed  share:  "  "It  must  be  a  guaranty  limited,  at  least, 
to  the  whole  profits  made  by  the  railway." 

Without  dwelling  longer  upon  this  and  similar  authorities,  it  is  per- 
fectly apparent  that  the  guaranty  of  a  dividend  b}"  a  railway  company 
is  considered  by  the  courts,  and,  it  seems  from  the  course  of  the  argu- 
ment by  the  counsel  in  these  causes,  who,  doubtless,  faithfully  represent 
the  interests  and  wishes  of  their  clients,  by  the  business  community  also, 
to  mean  nothing  more  than  a  pledge  of  the  funds  legally  applicable  to 
jhe  purposes__of  a  dividend ;  that,  in  short,  it  is  a  dividend,  and  not  a  • 
debt,  which  Isthus  preferred  and  guaranteed  ;  and  as  the  statement  of 
facts  admits  that  dividends  have  not  been  earned  in  this  case,  the  plain- 
tiff, if  there  were  no  other  difficulties  in  his  waj*,  could  not  recover,  and 
we  must  give  judgment  for  the  defendant. 


352         MILLS  V.   NOKTHERN   BAIL  WAY   OF   BUENOS  AYKES   CO. 


CHAPTER  X. 

RIGHT  OF  CREDITOR  OF  CORPORATION  TO  BRING  SUIT  IN 
REFERENCE  TO  CORPORATE  MANAGEMENT. 


MILLS  v.  NORTHERN   RAILWAY  OF  BUENOS   AYRES   CO. 

1870.     L.  R.  5  Chan.  Ap.  621.1 

APPEAL  from  an  order  of  STUART,  V.  C.,  granting  an  interlocutory 
injunction  against  the  corporation.  The  company  was  registered 
under  the  Companies  Act,  1862.  The  capital  was  divided  into  guar- 
anteed preference  shares,  deferred  preference  shares,  and  ordinary 
shares.  An  agreement  was  made  in  1862  between  the  company  and 
the  firm  of  E.  Murray  &  Co.,  which  consisted  of  J.  R.  Croskey  and 
Eugene  Murray,  that  the  firm  should  construct  certain  works  for  a  stip- 
ulated price.  The  agreement  contained  a  clause  for  referring  ques- 
tions between  the  parties  to  arbitration. 

The  works  were  performed  by  E.  Murray  &  Co.,  and  they  received 
certain  payments ;  but  they  still  claimed  £64,849  from  the  company, 
partly  under  the  contract  and  partly  for  extra  work.  This  claim  was 
disputed  by  the  company,  who,  on  the  contrary,  claimed  that  a  large 
sum  was  due  from  the  firm  to  the  company,  by  reason  of  the  firm's 
default  in  the  performance  of  the  contract. 

In  1870  the  directors  issued  a  report  recommending  that  the  sum  of 
£16,491  19s.  8d.  "  net  profits"  should  be  applied  in  payment  of  cer- 
tain arrears  of  dividend  due  to  the  guaranteed  preference  shareholders. 
The  directors  explained  that  they  had  been  using  revenue  for  purposes 
which  might  have  been  legalty  charged  to  capital,  and  recommended 
that  certain  sums  which  had  been  paid  out  of  revenue  should  now  be 
treated  as  payments  on  account  of  capital,  and  considered  as  having 
been  borrowed  for  the  purpose  of  capital  from  the  revenue ;  and  that 
the  amount  thus  to  be  treated  as  a  payment  on  account  of  capital  should 
be  afterwards  discharged  out  of  a  sum  of  £20,000,  which  they  purposed 
to  raise  by  issue  of  debentures  at  £6  per  cent.  The  report  also  recom- 
mended the  conversion  of  the  tramway  between  certain  points  into  a  rail- 
way. This  report  was  adopted  at  the  general  meeting  of  the  company. 

1  Statement  abridged.    Part  of  opinion  omitted.  —  ED. 


MILLS   V.  NORTHERN   RAILWAY   OF   BUENOS   AYRES   CO.         353 

The  plaintiffs  in  the  present  bill  are  Mills,  executor  of  Eugene  Mur- 
ray, and  Spratt  and  Stebbing,  assignees  of  J.  R.  Croskey.  The  bill 
alleged  that  Mills,  as  executor  of  Murray,  held  some  full}*  paid-up 
deferred  preference  shares.  It  alleged  that  the  plan  of  the  directors 
was  to  create  an  apparent  or  fictitious  fund  for  the  payment  of  share- 
holders ;  that  the  effect  of  the  proposal  was  to  increase  the  liabilities  of 
the  company  by  the  issue  of  debenture  stock,  for  the  purpose  of  bor- 
rowing money,  in  order  to  distribute  the  same  among  the  shareholders 
under  the  guise  of  revenue.  The  bill  prayed  for  an  account  and  pay- 
ment of  what  was  due  to  the  plaintiffs  under  the  contract,  and  for  other 
works ;  and  for  an  injunction  to  restrain  the  company  from  carrying 
out  the  proposal  in  the  report,  and  from  issuing  any  debenture  stock  or 
applying  an}-  money  raised  by  debenture  stock  on  debentures  in  payment 
of  any  dividend  to  any  of  the  shareholders,  and  from  declaring  or 
distributing  any  dividend  until  they  had  paid  or  made  provision  for 
paying  what  was  due  to  the  plaintiffs ;  and  also  from  converting  the 
tramway  into  a  railway  until  the  company  had  duly  increased  their 
original  capital.  The  plaintiffs  moved  for  an  injunction  in  similar 
terms.  STUART,  V.  C.,  granted  an  injunction  as  prayed  till  further 
order.  The  company  appealed. 

Sir  Roundell  Palmer,  Q.  C.,  Mr.  Greene,  Q.C.,  and  Mr.  Locock 
Webb,  for  appellants :  — 

Secondly,  the  Plaintiffs,  as  simple  contract  creditors,  with  no  lien 
on  any  part  of  the  property  of  the  company,  cannot  sustain  such  a  bill 
as  the  present,  which  seeks  to  interfere  with  the  management  of  the 
company  and  restrain  the  payment  of  dividends. 

They  were  stopped  by  the  Court. 

Mr.  Dickinson,  Q.  C.,  Mr.  Marten,  and  Mr.  E.  C.  Willis,  for 
plaintiffs :  — 

With  respect  to  the  Plaintiffs'  claim  as  creditors,  it  is  true  that  the 
simple  creditors  of  an  ordinary  partnership  cannot  file  a  bill  to  restrain 
the  partners  from  parting  with  the  assets  or  dividing  the  profits ;  but 
that  is  a  case  of  personal  liability  only.  The  Plaintiffs,  on  the  con- 
trary, are  creditors  of  a  limited  company,  and  gave  credit,  not  to  the 
shareholders,  but  to  the  assets  of  the  company.  It  would,  there- 
fore, be  unreasonable  if  they  could  not  restrain  the  wasting  of  those 
assets.  Suppose  the  case  of  a  company  whose  shareholders  have  all 
fully  paid  up  their  calls,  and  yet  the  railway,  or  other  works  from  which 
all  the  profits  proceeded,  had  not  been  paid  for.  Would  the  Court 
allow  the  directors  to  go  on  paying  away  all  the  profits  to  the  share- 
holders without  providing  for  the  payment  of  the  contractors?  In  what 
other  way  could  the  contractors  look  for  payment?  There  can,  in 
fact,  be  no  net  profits  till  the  works  and  plant  are  paid  for. 

With  respect  to  the  proposed  scheme  of  the  directors,  it  is  clearly 
ultrd,  vires.  It  is  a  scheme  for  paying  the  dividends  by  means  of  a 

23" 


354         MILLS   V.   NORTHERN   RAILWAY   OF   BUENOS   AYRES   CO. 

loan,  which  the  Court  will  not  sanction :  Macdougatt  v.  Jersey  Im- 
perial Hotel  Company.1  The  conversion  of  the  tramway  into  a  rail- 
way is  not  a  trifling  matter,  and  to  do  it  without  increasing  the  capital 
of  the  company  would  be  in  direct  contravention  of  the  memorandum 
of  association. 
LORD  HATHERLEY,  L.  C. :  — 

The  Vice-Chancellor  appears  to  have  formed  his  judgment  in  this 
case,  partly  at  least,  upon  the  view  which  he  took  that  one  of  the 
Plaintiffs,  Mr.  Mills,  was  a  shareholder  in  the  company,  and  therefore 
had  a  right  to  interfere.  But,  so  far  as  the  case  rests  on  the  simple 
fact  of  the  Plaintiffs  being  creditors  of  the  company,  it  seems  to  me 
hardly  capable  of  argument.  Work  is  done  for  a  limited  company ; 
no  engagement  is  taken  from  them  by  way  of  security ;  no  debenture 
or  mortgage  is  granted  by  them  ;  but  the  work  is  done  simply  on  the 
credit  of  the  company.  The  only  remedy  for  a  creditor  in  that  case  is 
to  obtain  his  judgment  and  to  take  out  execution  ;  or  it  may  be  that  he 
may  have  a  power,  if  the  case  warrants  it,  of  applying  to  wind  up  the 
company.  But  it  is  wholly  unprecedented  for  a  mere  creditor  to  say, 
"  Certain  transactions  are  taking  place  within  the  company,  and  divi- 
dends are  being  paid  to  shareholders  which  they  are  not  entitled  to 
receive,  and  therefore  I  am  entitled  to  come  here  and  examine  the 
company's  deed,  to  see  whether  or  not  they  are  doing  what  is  uUrd, 
vires,  and  to  interfere  in  order  that,  as  by  a  bill  quia  timet,  I  may 
keep  the  assets  in  a  proper  state  of  security  for  the  payment  of  my 
debt  whensoever  the  time  arrives  for  its  payment." 

The  case  must  have  occurred,  of  coarse,  man}'  years  ago,  before 
joint  stock  companies  were  so  abundant,  but  certainly  within  the  last 
twenty  or  thirty  years  the  money  due  to  creditors  must  have  been 
man}'  millions,  and  the  number  of  creditors  must  have  been  many 
thousands ;  yet  I  have  never  before  heard  —  and  I  asked  in  vain  for 
any  such  precedent  —  of  any  attempt  on  the  part  of  a  creditor  to  file  a 
bill  of  this  description  against  a  company,  claiming  the  interference  of 
this  Court  on  the  ground  that  he,  having  no  interest  in  the  company, 
except  the  mere  fact  of  being  a  creditor,  is  about  to  be  defrauded  by 
reason  of  their  making  away  with  their  assets.  It  would  be  a  fearful 
authority  for  this  Court  to  assume,  for  it  would  be  called  on  to  inter- 
fere with  the  concerns  of  almost  every  company  in  the  kingdom  against 
which  a  creditor  might  suppose  that  he  had  demands,  which  he  had 
not  established  in  a  court  of  justice,  but  which  he  was  about  to  pro- 
ceed to  establish.  If  there  is  this  power  in  any  case,  of  course  it 
would  apply  not  only  to  the  raising  of  money  by  debentures  and  to 
payiqg  shareholders,  but  it  would  extend  to  an  interference  in  every 
possible  way  with  the  dealings  of  the  compan}'. 

That  being  beyond  any  doubt,  I  come  next  to  the  question  whether 
these  persons  are  shareholders  or  not.  But  I  do  not  propose  to  decide 
that  question,  for  this  reason,  that  I  cannot  find  even  an  averment  — 

1  2  H.  &  M.  528. 


POND  V.   FRAMINGHAM   AND   LOWELL   R.   CO.  355 

and  the  bill  appears  to  be  demurrable  upon  that  ground  —  of  anything 
being  done  ultra  vires  by  the  company.  There  are  two  things  com- 
plained of  —  one,  that  the  company  are  going  to  raise  debentures  for 
purposes  illegitimate ;  the  other  is,  that  they  are  about  to  establish 
what  is  called  a  railway  instead  of  the  existing  tramway.  Now  let  us 
look  at  what  the  objects  of  the  company  are. 

[The  learned  Judge  held,  that  there  was  nothing  ultra  vires  in  the 
proposed  action  of  the  company.  The  opinion  concludes  as  follows  :  J 

Therefore,  even  if  we  assume  the  Plaintiffs  to  be  shareholders,  as  to 
which  more  argument  and  more  investigation  might  be  required  if  it 
were  necessary  to  determine  that  question,  the  Plaintiffs  have  shewn 
nothing  ultra  vires  ;  and,  counting  them  as  creditors,  the  case  is 
utterly  unfounded  as  regards  both  principle  and  authority.  I  think, 
therefore,  that  the  motion  for  an  injunction  ought  to  have  been  refused 
with  costs ;  and  I  make  an  order  to  that  effect. 


POND  v.  FRAMINGHAM   &  LOWELL  R.  CO. 

1881.     130  Mass.  194. 

MORTON,  J.  This  is  a  bill  in  equity,  the  substantial  allegations  of 
which  are,  that  the  plaintiffs  are  creditors  of  the  defendant  corpora- 
tion ;  that  the  corporation  is  insolvent ;  that  all  its  property  is  mort- 
gaged to  trustees  for  the  benefit  of  one  class  of  creditors  ;  that  it  owes 
large  amounts  to  other  creditors,  one  of  whom  has  attached  all  its 
property  ;  that  it  is  about  to  execute  a  lease  to  said  attaching  creditor, 
for  the  term  of  nine  hundred  and  ninety-nine  years,  at  a  rental  which 
will  not  pay  the  interest  upon  its  indebtedness ;  and  that  the  execu- 
tion of  said  lease  would  be  injurious  to  the  interest  of  its  creditors  and 
stockholders.  The  prayer  is  for  an  injunction  to  restrain  the  defend- 
ant from  further  prosecuting  its  business,  and  for  the  appointment  of 
receivers. 

There  is  no  statute  giving  this  court  equity  jurisdiction  in  such  a 
case  as  this,  and  the  bill  does  not  state  a  case  within  the  general  equity 
powers  of  a  court  of  chancery.  As  is  stated  In  Treadwell  v.  Salisbury 
Manuf.  Co.  7  Gray,  393,  "it  is  too  well  settled  to  admit  of  ques- 
tion, that  a  court  of  chancery  has  no  peculiar  jurisdiction  over  corpora- 
tions, to  restrain  them  in  the  exercise  of  their  powers,  or  control  their 
action,  or  prevent  them  from  violating  their  charter,  in  cases  where 
there  is  no  fraud  or  breach  of  trust  alleged  as  the  foundation  of  the 
claim  for  equitable  relief." 

The  plaintiffs  cannot  maintain  this  bill,  unless  upon  the  ground  that 
any  creditor  can  maintain  a  bill  in  equit}*  against  an  individual  debtor 
upon  like  allegations.  But  there  is  no  allegation  of  fraud  or  breach  of 


356         CLEVELAND   CITY,   ETC.   CO.   V.   TAYLOR   BROS.,   ETC.   CO. 

trust,  or  any  other  ground  of  jurisdiction,  which  brings  the  case  within 
the  general  equity  powers  of  a  court  of  chancery.  The  bill  is  an 
attempt  by  a  creditor  to  restrain  his  debtor  from  making  what  is 
alleged  to  be  an  improvident  contract.  The  rights  of  the  parties  are 
governed  by  the  rules  of  the  common  law.  The  plaintiffs  as  creditors 
might  by  an  attachment  have  obtained  security  which  would  take  pre- 
cedence of  the  contemplated  lease  ;  but  if  they  could  not,  the  court  has 
no  power  to  restrain  the  debtor  from  making  a  disposition  of  his  prop- 
erty which  is  permitted  by  the  common  law,  unless  fraud  or  a  breach 
of  trust  is  alleged  and  shown. 

The  allegation  that  the  defendant  corporation  is  insolvent  does  not 
aid  the  plaintiffs.  In  the  absence  of  any  statute  giving  the  power,  this 
court  has  no  authority  to  act  as  a  court  of  insolvency  for  the  liquida- 
tion of  the  affairs  of  an  insolvent  railroad  corporation. 

Decree  dismissing  the  bill  affirmed. 

M.  Williams  <fc  C.  A.  Williams,  for  the  plaintiffs. 

It.  Olney,  for  the  defendant. 


CLEVELAND  CITY  FORGE  IRON  CO.  v.  TAYLOR  BROS. 
IRON-WORKS   CO. 

1893.     54  Federal  Reporter,  85.1 

U.  S.  Circuit  Court,  Eastern  District  of  Louisiana. 

[The  facts  sufficiently  appear  in  the  opinion,  delivered  by  HON. 
EDWARD  C.  BILLINGS,  U.  S.  District  Judge,  while  sitting  in  the  U.  S. 
Circuit  Court.] 

W.  /S.  Parkerson,  Denegre,  Bayne  S  Denegre,  for  plaintiffs. 

Thomas  J.  Semmes,  for  defendants. 

BILLINGS,  District  Judge.  This  cause  is  submitted  on  an  applica- 
tion for  an  injunction  pendente  lite.  The  defendants  are  a  corporation, 
limited,  organized  under  the  laws  of  Louisiana,  and  the  stockholders 
therein.  The  complainants  are  plaintiffs  in  this  court,  who  have  com- 
menced suit,  two  b}'  attachment,  and  the  other  b}*  sequestration.  The 
chief  object  of  the  injunction  sought  is  to  restrain  the  stockholders 
from  dissolving  the  corporation.  Two  points  are  involved  in  this 
application,  and  must  be  considered :  First,  has  the  corporation  been 
already  dissolved?  and,  second,  if  not,  does  the  bill  make  a  case  for  an 
injunction? 

1.  As  to  the  claimed  dissolution.    [The  Court  heM,  that  the  corpora- 
tion had  not  been  legally  dissolved.] 

2.  Does  the  bill  make  a  case  for  injunction  if  the  corporation  exists? 

1  Only  so  much  of  opinion  is  given  as  relates  to  one  point.  —  ED. 


CLEVELAND   CITY,   ETC.   CO.   V.   TAYLOR   BROS.,   ETC.   CO.         357 

The  substance  of  the  bill  is  that  the  complainants  are  creditors  with 
attachment ;  that  the  defendants  have  made  an  attempt  to  dissolve  the 
corporation,  and,  unless  prevented  by  injunction,  will  dissolve,  to  the 
irreparable  injury  of  the  complainants.  There  is  no  charge  of  fraud  or 
damage,  save  by  previous  gross  mismanagement,  and  what  will  be 
accomplished  by  dissolution.  Unless  the  institution  of  an  attachment 
suit  gives  a  creditor  the  right  to  thus  interfere  to  prevent  a  dissolution  of 
an  indebted  corporation,  he  has  none  ;  for  the  authorities  seem  to  be  to 
the  effect  that  a  mere  creditor  has  no  right  to  prevent.  The  solicitors 
for  the  complainant  relied  upon  the  case  of  Fisk  v.  Railroad  Co.,  10 
Blatchf.  518.  A  careful  study  of  that  case  leads  me  to  the  conclusion 
that  it  is  distinguishable  upon  principle  from  this.  There  the  party 
obtaining  the  injunction  had  already  instituted  a  suit  in  equity,  aver- 
ring waste  of  the  assets  of  the  corporation,  for  the  purpose  of  winding 
up  the  entire  business  of  the  corporation  and  distributing  all  its  effects. 
The  attempt  to  dissolve  was,  therefore,  a  defiance  of  the  entire  pur- 
pose of  the  jurisdiction  with  which  the  circuit  court  was  seised.  Here 
there  is  simply  a  suit  at  law  with  an  attachment,  the  force  of  which,  as 
carrying  any  privilege,  is  dependent  upon  a  judgment.  It  is  a  pro- 
ceeding of  individual  creditors  to  secure  and  collect  individual  debts. 
The  dissolution  would  defeat  the  creditors'  object,  but  is  in  no  sense  a 
defiance  of  the  court's  jurisdiction ;  and,  as  it  seems  to  me,  after 
thoroughly  considering  the  Case  of  Fisk,  the  protection  of  a  previously 
acquired  jurisdiction  of  a  particular  subject-matter,  viz.  the  winding  up 
of  the  affairs  of  a  corporation,  and  the  distribution  of  its  assets  from 
being  supplanted,  was  the  ground  of  the  injunction  there,  which  here 
is  wanting.  While  in  each  case  the  object  of  the  suit  is  defeated,  and 
the  dissolution  is  the  medium  of  ushering  in  a  final  administration  of 
the  corporation's  estate,  in  the  Fisk  Case  that  administration  was  the 
sole  object  of  the  suit,  and  was,  so  to  speak,  circumvented  by  the  dis- 
solution and  consequent  administration.  The  pending  suit  has  a 
different  object,  —  the  collection  of  a  debt,  —  and  is  only  incidentally 
interrupted  by  a  suit  which,  like  bankruptcy  or  insolvency  proceedings, 
absorbs,  rather  than  circumvents,  the  object  of  the  original  suit.  The 
Fisk  Case  is  the  only  case  which  has  been  cited,  or  which  I  can  find, 
which  seems  to  sustain  the  injunction.  I  think  that  case  inapplicable, 
and  that,  upon  the  doctrines  of  law,  independent  of  that  case,  the 
creditors,  who  are  complainants,  upon  the  ground  set  forth  in  the  bill, 
have  no  more  right  after  an  attachment  suit  has  been  commenced  than 
the}"  had  before  to  enjoin  a  dissolution.  The  attaching  creditors,  by  a 
dissolution  of  a  defendant  corporation,  may  lose  all  priority  over  the 
other  creditors,  but  their  right  in  equit}'  to  enforce  their  claim  to  their 
ratable  portion  to  the  corporation's  assets  by  suitable  proceedings, 
which  is  all  that  a  court  of  equity  can  recognize  with  reference  to  a 
dissolution  of  the  defendant  corporation,  would  be  left  to  them.  The* 
injunction  is  therefore  refused. 


358  HEARD   V.   TALBOT. 


CHAPTER  XL 

FORFEITURE  OF  CHARTER  — HOW  ENFORCED.    SUIT  BY 
STATE  TO  RESTRAIN   ULTRA    VIRES  ACTS. 


HEARD  v.  TALBOT. 

1856.     7  Gray,  113.1 

COMPLAINT  under  Rev.  Sts.  c.  116,  for  flowing  land  by  the  water  of 
Concord  River,  raised  by  the  respondents'  dam  in  the  operation  of  their 
mills.  Respondents  claim  the  right  to  now  maintain  the  dam  without 
payment  of  damages,  as  the  grantees  of  the  corporation,  styled  the 
Proprietors  of  the  Middlesex  Canal.  The  corporation  was  chartered 
in  1793  to  build  a  canal.  In  1798  an  additional  act  authorized  the 
Proprietors  to  purchase  and  hold  any  mill  seats  on  the  waters  connected 
with  their  canal,  and  to  erect  mills  thereon.  The  charter  provided 
that  persons  whose  lands  were  flowed  might  obtain  compensation  by 
applying  to  the  Court  within  one  year  from  the  time  of  the  damage 
done.  The  Proprietors,  so  long  as  they  were  in  active  operation  as  a 
canal  company,  leased  and  sold  water  power  to  divers  persons,  to  be 
drawn  from  the  head  of  water  raised  by  the  Proprietors'  dam,  and  to 
be  used  in  subordination  to  the  use  of  the  water  for  feeding  the  canal. 
In  1826,  the  Proprietors  built  the  present  dam,  by  which  the  plaintiffs 
land  is  now  flowed.  In  1840,  the  plaintiff's  ancestor  applied  to  the 
Court  to  obtain  compensation  for  flowage.  The  petition  was  dismissed  ; 
the  Court  holding  that  the  damage  was  "  done "  when  the  dam  was 
completed,  and  that  no  application  could  be  made  after  one  }-ear  from 
that  time  had  elapsed.  (Heard  v.  Proprietors,  5  Metcalf,  81.) 

In  1851,  the  canal  was  wholly  disused  by  the  Proprietors,  and  filled 
up  in  parts  of  it ;  and  it  has  now  become  wholly  unfit  for  use,  and  is  no 
longer  filled  with  water,  and  is  wholly  unused  by  the  Proprietors. 

At  the  time  of  the  abandonment  of  the  use  of  their  canal,  and  as  a 
part  of  the  winding  up  of  their  affairs,  the  Proprietors  sold  all  their 
land  and  the  residue  of  the  water  power  by  them  unsold,  raised  by 
their  dam  aforesaid,  to  the  respondents  by  deed  of  quitclaim,  "  subject 
.expressly  to  the  reservation  of  all  easements  and  services  necessary  for 
or  incident  to  the  preservation  and  use  of  said  canal  for  the  purpose  of 

1  Statement  abridged.    Argument  omitted.  —  ED. 


HEAKD   V.   TALBOT.  359 

navigation,  and  of  all  the  rights  of  the  public  therein,  until  the  same 
shall  be  lawfully  discontinued  "  ;  and  the  respondents  have  since  that 
sale  maintained  and  kept  up  the  water  by  said  dam  for  manufacturing 
purposes,  and  claim  to  use  the  same  in  such  manner  and  to  such  extent 
as  may  suit  their  convenience  for  such  manufacturing  purposes,  subject 
to  said  reserved  right  of  said  canal. 

After  abandoning  the  canal,  and  after  the  deed  to  the  respondents, 
the  Proprietors  applied  to  the  legislature  for  leave  to  wind  up  their 
affairs,  and  to  sell  their  laud  and  water  power,  and  surrender  their 
charter,  which  application  was  denied.  Subsequently  they  petitioned 
the  Supreme  Court  for  leave  to  wind  up  their  affairs  and  surrender 
their  charter ;  which  petition  is  still  pending. 

B.  F.  Butler,  for  plaintiff. 

J.  G.  Abbott,  for  respondents. 

BIGELOW,  J.  There  can  be  no  doubt,  that  the  proprietors  of  the 
Middlesex  Canal,  under  their  original  act  of  incorporation,  St.  1793, 
c.  21,  and  under  the  additional  act  of  1798.  c.  16,  by  which  they  were 
empowered  to  purchase  and  hold  mill  seats  on  the  waters  connected 
with  their  canal,  acquired,  as  part  of  their  franchise,  the  right  to  flow 
the  land  of  the  complainant ;  and  that  this  right  was  in  its  nature  a 
permanent  easement  or  servitude,  for  which  the  complainant  or  those 
under  whom  he  claims  title  had  an  ample  remedy  in  damages  provided 
in  the  third  section  of  the  original  charter  of  the  corporation.  That 
remedy  was  an  exclusive  one,  and  the  time  within  which  parties  could 
legally  avail  themselves  of  it  has  long  since  passed  away.  These  points 
have  already  been  adjudicated.  Stevens  v.  Middlesex  Canal,  12  Mass, 
466.  Sudbury  Meadows  v.  Middlesex  Canal,  23  Pick.  36.  Heard  v. 
Middlesex  Canal,  5  Met.  81. 

It  seems  to  us  very  clear  that  there  is  nothing  in  the  facts  of  the 
present  case  to  take  it  out  of  the  principles  settled  by  those  decisions, 
and  that  there  is  no  ground  on  which  the  claim  of  the  complainant  to 
damages  under  the  mill  act  can  be  sustained  against  these  respondents. 
They  hold  their  title  to  the  mills  and  water  power  raised  by  the  dam 
which  causes  the  land  of  the  complainant  to  be  flowed,  under  a  grant 
from  the  Proprietors  of  the  Middlesex  Canal.  By  the  deed  under 
which  they  claim,  the  right  is  expressly  reserved  to  the  grantors  to 
appropriate  the  water  raised  by  the  dam  at  all  times  to  the  purpose  of 
supplying  their  canal.  It  is  therefore  in  the  right  of  the  canal  corpora- 
tion, and  subject  to  this  reservation,  that  the  respondents  claim  to  use 
and  enjo}*  the  mill  privileges  created  by  the  clam  which  is  the  subject 
of  this  complaint.  Unless,  therefore,  the  corporation  have  surrendered^ 

nr   Iffit  fo«   right,   fo    iropp    up    nnrl    maintain    f.nia    flnn^    it.    having    heei^ 

alread}-  settled  in  6  Met.  81,  that  the  complainant  Das  no  claim  fo^ 
damages  on  account  thereof  against  the  corporation,  it  would  seem  to 
follow  that  he  has  none  against  these  respondents,  who  claim  under 
the  corporation. 

The  sole  ground  on  which  he  now  rests  his  case  is,  that  the  canal 


360  HEARD   V.   TALBOT. 

corporation  have  since  the  year  1851  wholty  disused  their  canal,  filled 
up  portions  of  it,  and  suffered  it  to  remain  in  such  condition  as  to  be 
entirety  unfit  for  use.  The  argument  is,  that  the  right  of  erecting  and 
maintaining  a  dam  was  granted  to  the  corporation  mainly  for  the 
purpose  of  enabling  them  to  raise  water  for  the  supply  of  their  canal, 
and  the  power  to  hold  mills  was  wholly  incidental  to  and  dependent  on 
the  appropriation  and  use  of  the  water  raised  b}-  the  dam  for  the  great 
object  for  which  the  corporation  was  established  and  their  franchise 
granted ;  that  the  corporation,  having  abandoned_the  use  of  the  canal,, 
and  ceased  to  supply  it  with  water,  can  no  longer  claim— the  right^ 
under  their  charter^to  maintain  the  dam. 

Admitting,  for  the  sake  of  giving  full  force  to  this  argument,  the 
correctness  of  the  premises  on  which  it  rests,  we  do  not  think  the  con- 
clusion drawn  from  them  legitimately  follows.  An  essential  link  in  the 
chain  of  reasoning  is  wanting.  The  argument  qssnnies  that  foe  npp;1pp.t, 
or  omission  to  use  a  right  granted  to  a  corporation,  asjaarjL.ojf.  their 
franchise,  for  the  specific  purpose  for  which  jt  wns_gtven,  necessarily 
/  works  a  foneuurlT'oTthe  right  itself.  But  this  is  not  so,  unless_the 
/  right  is  expressly  made  conditional  on  the  use?  which  ip  "»<••  firm?,  jp 
the  act  incorporating  The"  proprietors  of  the_canal.  The  right  is  given 
absolutely,  and  without  express  condition  or  limitation.  The  corpora- 
tion are  still  in  existence.  All  the  rights  and  powers  conferred  on 
them  b}r  law,  and  comprehended  within  the  broad  terms  of  their 
franchise,  have  never  3'et  been  legally  forfeited  or  extinguished.  Nor 
can  they  be,  except  by  a  surrender  of  the  charter  and  its  acceptance 
by  the  government,  orby_a  forfeiture  declar^d_b7"tHe~jiidgment  of  a 
competent  tribunal,  or  by  proceedings  under  St.  1852,  c.  55. 

In  the  absence  ^f"  express  conditions  in  an  act  of  incorporation,  by 
which  corporate  rights  and  powers  are  made  to  depend  on  their  due 
exercise,  a  nonuser  or  misuser  of  them  does  not  operate  as  a  surrender 
or  forfeiture  of  the  charter.  Although  the  disuse  of  the  canal  and  its 
abandonment  by  the  corporation  may  be  a  gross  disregard  of  the  duty 
imposed  on  them  by  law,  and  an  essential  violation  of  the  terms  and 
conditions  implied  from  the  contract  entered  into  with  the  government 
by  the  acceptance  of  the  charter,  and,  upon  due  proceedings  had,  might 
be  a  sufficient  ground  upon  which  to  decree  a  forfeiture  of  all  their 
corporate  rights  and  privileges,  they  do  not  constitute  an}1  valid  ground 
upon  which  the  exercise  by  the  corporation  of  any  of  the  powers  con- 
ferred by  their  charter  can  be  defeated  or  denied  by  third  persons  in 
collateral  proceedings.  This  results  from  the  very  nature  of  an  act  of 
incorporation.  It  is  not  a  contract  between  the  corporate  body, _on_the 
one  hand,  and  individuals  Wh6se  rigbts~and  interests  may  be  affected" 
by  the  exercise  of  its  powers,  on  the  other.  It  is  a  compact  between 
the  corporation  and  the  government  from  jvbich  they  derivejthcir 
powers.  Individuals  therefore  cannot  take  TitTupon  themselves  in  the 
assertion  of  private  rights,  to  insist  on  breaches  of  the  contract  by  the 
corporation,  as  a  ground  for  resisting  or  denying  the  exercise  of  a  cor- 


HEARD   V.   TALBOT.  361 

porate  power.  That  can  be  done  only  by  the  government  with  which 
the  contract  was  made,  and  in  proceedings  duly  instituted  against  the 
corporation.  It  would  not  only  be  a  great  anomaly  to  allow  persons, 
not  parties  to  a  contract,  to  insist  on  its  breach  and  enforce  a  penalty 
for  its  violation  ;  but  it  would  be  against  public  policy,  and  lead  to  con- 
fusion of  rights,  if  corporate  powers  and  privileges  could  be  disputed 
and  defeated  by  ever}'  person,  who  might  be  aggrieved  by  their  exercise^ 
Therefore  it  has  been  often  held,  that  a  cause  of  forfeiture,  however 
great,  cannot  be  taken  advantage  of  or  enforced  against  corporations 
collaterally  or  incidentally,  or  in  an}'  other  mode  than,  by  a  direct  pro- 
ceeding for  that  object  in  behaJf_ofjthfi.gQYernmcntt  Angell  &  Ames 
on  Corp.  §  777,  and  cases  cited.  Boston  Glass  Manufactory  v. 
Langdon,  24  Pick.  49.  Quincy  Canal  v.  Newcomb,  1  Met.  276. 

It  follows  from  these  principles,  that  the  franchise  of  the  Proprietors 
of  the  Middlesex  Canal,  which  includes  the  right  of  keeping  up  and 
maintaining  the  dam  which  flows  the  land  of  the  complainant,  being 
still  in  existence,  it  is  not  competent  for  him  in  this  proceeding  to 
show  a  nonuser  or  abandonment  of  the  canal,  as  a  ground  for  denying 
the  right  of  the  corporation  to  continue  the  dam  ;  and  as  the  respondents 
hold  their  title  under  the  corporation,  and  justif}'  the  flowing  of  the 
complainant's  land  under  the  corporate  franchise,  there  is  no  ground  for 
sustaining  the  present  complaint  under  the  mill  act  against  the  respond- 
ents. It  is  a  sufficient  answer  to  this  suit,  that  the  corporation  have 
the  legal  right  to  maintain  the  dam  as  against  the  complainant,  without 
payment  of  damages. 

This  view  of  the  case  renders  it  unnecessary  to  determine  the  question 
discussed  at  the  bar,  whether  the  right  to  purchase  and  hold  mills, 
which  was  conferred  on  the  corporation  b}-  the  act  of  1798,  was  the 
grant  of  an  additional  and  distinct  franchise  or  right,  which  may  be 
used  and  enjoyed  by  the  corporation  or  their  grantees  separately  from 
and  independently  of  the  building  and  maintaining  of  a  canal ;  or 
whether  it  was  merely  secondary  and  subordinate  to  the  making  of  a 
canal  and  the  raising  of  water  for  its  supply,  and  was  to  cease  and 
become  extinguished  when  the  right  of  keeping  and  using  the  canal 
should  be  surrendered  or  forfeited.  Nor  have  we  occasion  to  decide 
whether  the  forfeiture  or  extinguishment  of  the  charter  of  the  corpora- 
tion would  operate  to  defeat  the  title  of  the  grantees  of  the  corporation 
to  the  mills  and  water  power  which  had  been  acquired  b}-  the  cor- 
poration lawfully,  and  conve}"ed  to  the  respondents  b}'  deeds  valid  at 
the  time  they  were  made,  by  which  the  title  became  vested  before  such 
extinguishment  or  forfeiture  took  place.  These  are  important  and 
interesting  questions ;  but  it  will  be  quite  time  enough  to  settle  them, 
when  the  exigency  of  a  case  shall  require,  in  order  to  adjudicate  upon 
the  rights  of  parties,  that  they  should  be  judicially  determined. 

Complainant  nonsuit. 


362  WALLAMET,   ETC.   CO.   V.   KITTRIDGE. 


WALLAMET,  &o.  CO.  v.  KITTRIDGE. 

1877.     5  Sawyer  (U.  S.  Circuit  Court),  44.1 

U.  S.  Circuit  Court.  District  of  Oregon.  Before  DEADY,  DISTRICT 
JUDGE. 

Action  upon  a  bond,  conditioned  for  the  performance  of  a  contract. 

Defendants,  among  other  defenses,  pleaded  :  — 

2.  That  on  May  1,  1876,  the  plaintiff  ceased  to  carry  on  the  busi- 
ness for  which  it  was  formed,  and  has  not  since  transacted  or  carried 
on  any  of  such  business,  and  has  ceased  to  exist. 

Plaintiff  demurred. 

The  above  plea  is  founded  on  section  16  of  the  corporation  act 
(Oregon  Laws,  p.  528),  which  provides  that  if  an}'  corporation  organ- 
ized thereunder,  "  shall  for  any  period  of  six  months  after  the  com- 
mencement of  its  business,  neglect  and  cease  to  carry  on  the  same,  its 
corporate  powers  shall  also  cease." 

William  Strong,  for  plaintiff. 

Charles  S.  Upton,  for  defendant. 

DEADY,  J.  [After  stating  the  case.]  It  is  admitted  by  counsel  for 
the  defendant  that  a  forfeiture  of  the  plaintiff's  corporate  powers  can- 
not be  set  up  to  defeat  this  action.  But  it  is  claimed  that  the  non-exist- 
ence of  a  corporation  may  always  be  pleaded  to  an  action  professed  to 
be  brought  by  it ;  as  that  it  was  never  d'l1}'  nreatipd  n'*  h«.d  w^ed  to 
exist  by  lapge^of  time  ;  and  that  under  the  provision  cited  from  section 
T&^siipra,  whenever  a  corporation  neglects  to  use  its  powers  for  any 
one  period  of  six  months  it  ceases  to  exist,  the  same  as  if  its  corporate 
life  had  then  expired  by  lapse  of  time. 

But  in  my  judgment  the  language  —  "  its  corjporate  powers  shall 
cease,"  is  the  substantial  equivalent  of  the  phrase  "  its  corporate 
powers_8hall  be  forfeited."  In  either  case  the  statute  dona  not,  eyennte 
fiielE  An  inquiry  must  be  made  to  ascertain  whether  the  corporation 
has  kept  the  conditions  subsequent  upon  which  its  creation  was  author- 
ized and  permitted.  If  there  has  been  a  failure  to  keep  any  such  con- 
dition no  one  can  allege  it  or  take  advantage  of  it  but  the  State  which 
created  or  authorized  the  corporation.  In  this  respect  a  corporation  is 
like  an  estate  in  fee.  If  a  condition  subsequent  is  annexed  to  such  an 
estate,  no  one  but  the  grantor  or  his  successors  can  take  advantage  of 
its  non-performance.  (Schulenberg  v.  Harriman,  21  Wall.  63.)  Upon 
the  question  of  whether  the  words  —  "its  corporate  powers  shall 
cease,"  import  a  forfeiture  of  the  corporate  existence  rather  than  an 
actual  termination  of  the  same,  as  by  lapse  of  time,  the  case  of 
Lessee  of  Frost  et  al.  v.  Frostburg  Coal  Co.,  24  How.  283,  is  in 
point.  There  the  law  provided  that  in  case  four  fifths  of  the  capital 

1  Statement  abridged.    Only  so  much  of  case  is  given  as  relates  to  one  point.  —  ED. 


WALLAMET,   ETC.   CO.   V.   KITTRIDGE.  363 

stock  of  a  corporation  became  concentrated  in  the  hands  of  less  than 
five  persons  'kthe  corporate  powers  and  privileges  shall  cease  and 
determine,"  and  it  appearing  that  the  stock  of  the  corporation  defend- 
ant was  so  owned,  the  court  held  that  it  was  a  cause  of  forfeiture  of 
which  a  private  party  could  not  take  advantage ;  saj'ing,  "  That  is  a 
question  for  the  sovereign  power,  which  ma}-  waive  it  or  enforce  it  at 
_its  pleasure."  In  Chesapeake  etc.  Canal  Co.  v.  Ohio  It.  Co.,  4  Gill  & 
John.  1,  it  was  held  that  a  violation  of  a  provision  in  a  charter  of  a 
corporation,  to  the  effect  that  on  a  breach  of  a  certain  condition  such 
corporation  should  not  be  entitled  to  an}-  privilege  under  the  act  of 
incorporation,  and  thajt  all  its  interest  thereunder  should  be  forfeited 
and  cease,  did  not  ipso  facto  work  a  dissolution  of  the  corporation. 
See,  also,  to  the  same  effect,  The  People  v.  The  Manhattan  J3ank,  9 
Wend.  382  ;  Bradt  v.  Benedict  [17  New  York]  93  ;  MicJcles  v.  Roches- 
ter Bank,  11  Paige,  118.  That  this  provision  in  section  16,  supra, 
concerning  the  non-user  of  corporate  powers,  is  a  condition  subsequent 
and  not  a  limitation  upon  the  existence  of  the  corporation,  is  further 
shown  by  the  Code  of  Civ.  Pro.,  which  provides  (sec.  353,  sub.  4)  that 
an  action  may  be  maintained  in  the  name  of  the  state  "  for  the  purpose 
of  avoiding  the  charter  or  annulling  the  existence  of  such  corporation, 
.  .  .  whenever  it  has  forfeited  its  privileges  or  franchises,  by  failure  to 
exercise  its  powers." 

Here,  the  state  has  provided  a  direct  judicial  proceeding  to  annul  the 
existence  of  a  corporation  which  has  failed  to  exerciseits  powers  for 
such  a  period  and  under  such  circumstances  as  causes  a  forfeiture  of  its 
privileges — the  very  case  described  in  section  16,  supra.  Indeed,  this 
declaration  of  the  statute  is  simply  intended  to  define  and  make  certain 
what  kind  and  duration  of  neglect  or  non  user  of  the  corporate  powers 
shall  be  a  sufficient  cause  of  their  forfeiture.  Without  the  statute  the 
question  in  each  case  was  involved  in  the  uncertainty  of  determining 
•whether,  under  all  the  circumstances,  the  neglect  was  wilful  and  mate- 
rial. (A.  &  A.  on  Cor.  776.)  But  now  the  statute  furnishes  a  certain 
and  prescribed  rule.  A  neglect  to  exercise  the  powers  of  the  corpora- 
tion for  six  months  works  a  forfeiture  without  reference  to  the  cause  or 
consequence  of  such  neglect.  But  this  action  can  o_nly_be  brought  in 
the  name  of  the  state  ajqcL-upoa- leave  granted,  by  the  judge  of  the 
court.  Neither  the  forfeiture  nor  the  fact  of  non  user  can  be  set  up  by 
a  private  person  for  any  purpose.  It  must  first  be  judicially  ascer- 
tained and  declared  on  the  complaint  of  the  state.  (A.  &  A.  on  Cor., 
sec.  777.)  The  demurrer  to  this  defense  is  sustained. 
[Remainder  of  opinion  omitted.] 


364         OAKLAND   E.   CO.   V.   OAKLAND,   BBOOKLYN,   ETC.   E.   CO. 


BELCHER,  J.,  IN  OAKLAND  R.  CO.  v.  OAKLAND,  BROOKLYN 

&c.  R.  CO. 

1873.     45  California,  365,  pp.  373,  374,  378. 

Conceding  that  the  plaintiff's  grant  was  upon  condition  subsequent, 
still  it  does  not  follow  that  its  right  in  that  part  of  the  street  where  it 
had  not  constructed  a  road  could  be  determined  only  by  a  judgment  of 
forfeiture. 

The  grant  was  of  a  franchise,  which  had  the  legal  character  of  an 
estate  or  property.  "An  estate,"  said  Chancellor  KENT,  "in  such  a 
franchise  and  an  estate  in  land  rest  upon  the  same  principle,  being 
equally  grants  of  a  right  or  privilege  for  an  adequate  consideration." 
3  Kent's  Com.  458. 

N,ow,  while  a  forfeiture  at  common  law  does  not  operate  to  divest 
the  title  of  the  owner  until  by  a  proper  judgment  in  a  suit  instituted  for 
that  purpose  the  rights  of  the  State  have  been  established,  it  is  otber- 
wigp  whpr^  t.hp  forfeiture  is  declared  by  a  statute.  In  the  latter  case 
thlftltleto  the  thing  forfeited  immediately  vests  in  the  State  upon  the 
commission  of  the  offense  or  the  happening  of  the  event  for  which  the 
forfeiture  is  declared,  or  at  such  other  time  and  upon  such  other  con- 
dition as  the  statute  may  name.  The  authorities  to  this  effect  are 
numerous  and  uniform. 

"  It  has  been  proved,"  said  MARSHALL,  C.  J.,  "  that  in  all  forfeitures 
accruing  at  common  law  nothing  vests  in  the  government  until  some 
legal  step  shall  be  taken  for  the  assertion  of  its  right,  after  which,  for 
many  purposes,  the  doctrine  of  relation  carries  back  the  title  to  the 
commission  of  the  offense  ;  but  the  distinction  taken  by  the  counsel  for 
the  United  States  between  forfeitures  at  common  law  and  those  accru- 
ing under  a  statute  is  certainty  a  sound  one.  When  a  forfeiture  is_ 
j^h^ft 4»y-a-statute_tlie  rules_of_tbe  commonjaw  may  bejjlispensed  with, 
and  the  thing- forfeited  m ay  pithgr  vpst  i m uipHiaJply  m-  £>r^jhhp_  per- 
formance of  some~partjcuMlictras  shall  be_thej£JlLof  the  legislature. 
United  /States^rTrrundy ',  3  C  ranch,  151." 

In  this  case  it  is  clear  that  the  legislature  intended,  by  the  restric- 
tion as  to  the  time  within  which  the  plaintiff's  work  must  be  com- 
pleted, _thjit__it5riiouldhaj^!_jip^^  if  it 
failed  to  exerciie  them'wjthinjiiej^ears.  This  intention  was  expressed 
m^the^most"  expliBtfTerms,  fbr,  as  we  have  seen,  it  declared  that 
upon  failure  to  comply  with  the  provisions  of  the  act,  "  then  the  fran- 
chise and  privileges  herein  granted  shall  utterly  cease  and  be  forfeited." 
Not  to  give  effect  to  this  declaration  would  be  to  frustrate  and  defeat 
the  legislative  will. 


BROOKLYN   STEAM   TRANSIT   CO.   V.   CITY  OF   BROOKLYN.        365 


BROOKLYN  STEAM  TRANSIT  CO.  v.  CITY  OF  BROOKLYN. 

1879.     78  New  York,  524.1 

APPEAL  from  judgment  in  favor  of  defendant,  rendered  by  General 
Term  in  the  Second  Department. 

The  action  was  brought  by  plaintiff,  Aug.  31,  1878,  to  restrain  de- 
fendant from  interfering  with  the  construction  of  its  road  in  defendant's 
streets. 

Plaintiff  was  incorporated  by  Chapter  940,  Laws  of  1871.  Section  17 
provides  as  follows:  "This  act  shall  take  effect  sixty  days  after  the 
passage  thereof ;  but  unless  said  Brooklyn  Steam  Transit  Company  be 
Organized,  and  at  least  one  mile  of  annh  railrnad,  as  \\,  fa  flnthnrjg^ and 

empowered  to  construct  under  this  act,  be  laid  within  three  years  there- 
after, then  and  in  that  case  this  act  and  all  the  powers,  rights,  and_ 
franchises  herein  and  hereby  granted,  shall  be  deemed  forfeited  and 
terminated.^ 

Under  that  act  plaintiff  was  in  some  way  organized.  By  a  subse- 
quent act  of  1873,  the  time  for  the  construction  of  the  one  mile  of  rail- 
road was  extended  to  July  4,  1876.  The  plaintiff  did  not  build  or  lay 
any  portion  of  its  railroad  until  June,  1878,  when  it  built  a  mile  outside 
the  city  of  Brooklyn,  and  commenced  to  lay  foundations  for  a  railroad 
within  the  city  limits. 

David  Dudley  field,  for  appellant. 

William  C.  JDe  Witt,  for  respondent. 

EARL,  J.  [After  stating  the  case.]  The  claim  of  the  defendant  is 
that  the  plaintiff  lost  its  corporate  existence  by  not  building  one  mile 
of  its  road  before  the  expiration  of  the  time  limited,  to  wit,  July  4, 
1876. 

The  general  principle  is  not  disputed  that  a  corporation,  by  omitting 
to  perform  a  duty  imposed  by  its  charter  or  to  comply  with  its  pro- 
visions does  not  ipso  facto  lose  its  corporate  character  or  cease  to  be  a 
corporation,  but  simply  exposes  itself  to  the  hazard  of  being  deprived 
of  its  corporate  character  and  franchises  by  the  judgment  of  the  court 
in  an  action  instituted  for  that  purpose  by  the  attorney-general  in  be- 
half of  the  people ;  but  it  cannot  be  denied  that  the  Legislature  has 
the  power  to  provide  that  a  corporation  may  lose  its  corporate  exist- 
ence without  the  intervention  of  the  courts  by  any  omission  of  duty  or 
violation  of  its  charter  or  default  as  to  limitations  imposed,  and  whether 
the  Legislature  has  intended  so  to  provide  in  &ny  case  depends  upon 
the  construction  of  the  language  used.  Here  the  language  used  shows 
that  the  Legislature  intended  to  make  the  continued  existence  of  the 
pTn.inf.iff  as^nnrporat.inn  depend  npnn  its  nomplianne  wjtlTthe  require^ 
ments  of  section  sei'fntppn  of  thft  ftriginnl  nrt  In  case  of  non-compli- 

1  Statement  rewritten.    Arguments  and  part  of  opinion  omitted.  —  ED. 


366        BROOKLYN   STEAM   TRANSIT   CO.   V.   CITY   OF   BROOKLYN. 

ance  the  act  itself  was  to  cease  to  have  any  operation,  and  all  the 
powers,  rights  and  franchises  thereby  granted  were  to  ne  "  deemed 
forfeited  and  terminated."  There  was  to  be  not  merely  a  cause  of 
forfeiture  which  could  be  enforced  in  an  action  instituted  by  the 
attorney-general,  but  the  powers,  rights  and  franchises  were  to  be 
taken  and  treated  as  forfeited  and  terminated.  At  the  end_of  the  time 
limited  the  corporation  was  to  come  to  an  end,  as  if  that  were  the  time 
limited  in  its  charter  for  its  corporate  existence.  A  precise  authority 
for  this  construction  of  this  statute  is  found  in  the  case  of  the  Brooklyn, 
Winfield  and  Newton  Railroad  Company  (72  N.  Y.  245).  That 
company  was  organized  under  the  general  railroad  act  of  1850,  as 
amended  by  the  act,  chapter  775  of  the  Law  of  1867.  By  the  last 
named  act  it  is  provided  that  "  if  any  corporation  formed  under  the 
general  act  shall  not,  within  five  years  after  its  articles  of  association 
are  filed  and  recorded,  begin  the  construction  of  its  road  and  expend 
thereon  ten  per  cent  on  the  amount  of  its  capital,  or  shall  not  finish  its 
road  and  put  it  in  operation  in  ten  years  from  the  time  of  filing  its 
articles  of  association,  as  aforesaid,  its_corporate  existence  ajndjywejs 
shall-eease."  That  company  had  not  begun  the  construction  of  its 
road  within  the  time  limited,  and  it  was  held  that  it  had  lost  its  corpor- 
ate existence,  and  the  same  view  was  emphaticall}*  reiterated  when  a 
similar  case  of  the  same  compan}-  was  again  before  this  court  (75 
N.  Y.  335).  It  was_held_that  the  statute  executed  itself,  and  that  the 
intervention  of  the  courts  in  an  action  instituted  by  the  attorney-general 
was  not  necessaiy.  The  language  of  limitation  used  in  section  seven- 
teen of  the  act  of  1871,  more  plainly,  if  possible,  indicates  the  legisla- 
tive intention,  that  a  failure  to  comply  with  the  limitations  should  put 
an  absolute  end  to  the  corporation,  than  the  language  used  in  the  act 
of  1867. 

An  effort  was  made  upon  the  argument  of  this  case  by  the  learned 
counsel  for  the  appellant  to  distinguish  this  case  from  the  one  cited,  but 
•we  can  perceive  no  material  difference  between  the  two  cases.  In  that 
case  the  compan}*  was  fully  organized,  as  it  was  in  this.  That  com- 
panj"  had  a  corporate  existence  to  lose,  and  so  had  this.  It  is  probably 
true,  that  this  compan}'  in  making  surve3*s  and  plans  within  the  three 
3-ears  ma}*  have  done  more  than  .that  company  did,  but  that  is  imma- 
terial, so  long  as  it  failed  to  do  the  precise  thing  required  by  the  stat- 
ute. In  that  case  the  proceeding  was  to  interfere  with  private  property 
by  the  right  of  eminent  domain.  Here  this  compan}'  was  proceeding 
to  occupy  the  public  streets  which  were  under  the  charge  and  control 
of  the  city.  In  the  one  case,  as  in  the  other,  corporate  existence  and 
right  were  necessary  to  justif}'  the  act.  The  city  must  have  as  much 
right  to  question  this  use  of  its  streets  as  a  private  owner  would  to 
question  the  use  of  his  property.  If  a  private  owner  could  in  such 
case  question  the  corporate  existence  of  the  company,  the  city  must 
have  the  same  right.  The  fact  that  that  companj"  was  organized  under 
a  general  law.  while  this  is  organized  under  a  special  law,  can  make 


NEW   YORK   AND   LONG   ISLAND   BRIDGE   CO.   V.   SMITH.         367 

no  difference.  A  corporation  organized  under  a  general  law  is  upon 
precisely  the  same  footing  as  one  constitutionally  organized  under  a 
special  law  which  contains  all  the  provisions  of  the  general  law.  Nor 
can  the  fact  that  this  company  has  already  built  one  mile  of  its  road 
distinguish  this  case  from  the  one  cited.  If  we  are  right  thus  far,  it 
built  that  line  without  any  authorit}1,  and  it  did  not  acquire  thereby 
the  right  to  enter  the  city  and  continue  its  wrongful  acts  there.  But  it 
is  not  necessary  to  determine  in  this  case  what  the  status  of  the  plain- 
tiff would  have  been  if  it  had  been  operating  its  road  upon  the  mile 
thus  constructed.  It  is  sufficient  now  to  determine  that  it  cannot  wage 
an  aggressive  warfare  either  upon  private  property  or  the  public  streets 
of  the  city  of  Brooklyn  without  further  or  cither  legislative  authority 
than  it  invoked  upon  the  trial  of  this  action. 
[Remainder  of  opinion  omitted.] 


NEW  YORK   &  LONG  ISLAND  BRIDGE  CO.  ».  SMITH. 

1896.     148  New  York,  540.1 

CONDEMNATION  PROCEEDING.  An  order  appointing  commissioners  of 
appraisal  was  affirmed  b}-  the  General  Term  in  the  First  Department. 
The  defendant  Smith  appealed. 

De  Lancey  Ntcoll,  for  appellant. 

Julien  T.  Davies,  and  William  J.  Kelly,  for  respondent. 

BARTLETT,  J.  The  main  question  presented  by  this  appeal  is 
whether  the  New  York  and  Long  Island  Bridge  Company  was,  at  the 
time  this  proceeding  was  instituted,  an  existing  corporation  duly  author- 
ized to  acquire  title  to  the  land  of  the  defendant  Smith,  for  the  purposes 
of  constructing  the  bridge  and  its  approaches. 

The  learned  counsel  for  the  appellant  rests  his  attack  upon  the  cor- 
porate existence  on  various  distinct  grounds,  and  a  proper  considera- 
tion of  them  involves  a  full  examination  of  the  legislation  under  which 
the  bridge  company  claims  the  right  to  maintain  this  proceeding. 

The  appellant  takes  a  preliminary  point  which,  if  sound,  would 
require  a  reversal  of  the  order  appealed  from,  and  a  dismissal  of  this 
proceeding. 

The   act  incorporating  the  bridge   company   (Chap.  395,  Laws  of 
1867),  provides  in  the  twelfth  section  thereof  that  the  bridge  shall  be 
commenced  within  two  yftars  from  tho-passage  of  the  actjjind  shall  be_ 
continued  without  unreasonable  delay,  pnt.il  if.  ia  <vimp1pt,pd,  "  or  this 
act  and  all  rights  and  privileges-granted  hereby  shall -be  null  and  void." 

1  Statement  abridged.  Arguments  omitted.  Only  so  much  of  the  opinion  is  given 
as  relates  to  one  ooiut.  —  ED. 


368         NEW  YORK   AND   LONG   ISLAND   BRIDGE   CO.   V.   SMITH. 

It  is  the  contention  of  appellant's  counsel  that  this  forfeiture  clause 
is  self-executing,  and  as  it  is  admitted  that  the  work  was  not  com- 
menced within  two  years  from  the  passage  of  the  act,  the  bridge  com- 
pany, ipso  facto,  ceased  to  exist. 

We  are  referred  to  a  large  number  of  authorities  as  sustaining  this 
position,  and,  among  others,  to  several  cases  in  this  court. 

It  is  to  be  observed  that  the  question  as  to  whether  a  forfeiture  clause 
is  or  is  not  self-executing,  depends  wholly  upon  the  language  employed 
b}*  the  legislature. 

Our  attention  is  called  particularly  to  In  re  Brooklyn,  Winfield  & 
Newtown  Ry.  Co.  (72  N.  Y.  245)  and  Brooklyn  Steam  Transit  Co. 
v.  City  of  Brooklyn  (78  N.  Y.  524). 

In  the  first  case  the  words  of  forfeiture  were,  "  its  corporate  exist- 
ence and  powers  shall  cease,"  and  this  court  held  that  upon  default  the 
corporation's  existence  and  powers  ceased,  without  judicial  proceed- 
ings. In  the  second  case  the  words  of  forfeiture  were,  "  this  act  and 
all  the  powers,  rights  and  franchises  herein  and  hereby  granted  shall 
be  deemed  forfeited  and  terminated,"  and  this  court  held  the  clause  to 
be  self-executing,  thereby  recognizing  the  undoubted  power  of  the 
legislature  to  provide  that  corporate  existence  shall  cease  by  the  mere 
fact  of  failure  of  the  corporation  to  perform  certain  acts  imposed  by  the 
charter. 

It  requires,  however,  strong  and  unmistakable  language,  such  as 
^  each  of  the  cases  referred  to  presents,  to  authorize  the  court  to  hold 
that  it  was  the  intention  of  the  legislature  to  dispense  with  judicial 
proceedings  on  the  intervention  of  the  attorney-general. 

In  the  case  at  bar  the  words  of  forfeiture  are,  "  all  rights  and  privi- 
leges granted  hereby  shall  be  null  and  void." 

It  cannot  be  said  that  the  words  ' '  shall  be  null  and  void  "  disclose 
the  legislative  intent  to  make  this  clause  self-executing.  The  word_s 
"  null  and  void,"  as  used  in  this  connection,  clearly  mean  voidable*- 
The  word  "  void  "  is  often  used  in  an  unlimited  sense,  implying  an  act 
of  no  effect,  a  nullity  ab  initio  (Inskeep  v.  Lecony,  1  N.  J.  L.  112) ; 
in  the  case  at  bar  it  wajjiot  so  emploj'ed,  but  rather  in  its  more  lim- 
ited ineanhig. 

We  think  these  words  mean  no  more  than  if  the  legislature  had  said, 
in  case  of  default  the  corporation  "  shall  be  dissolved."  The  attorney- 
general  was  authorized  to  treat  the  charter  of  the  bridge  company  as 
voidable,  and  by  appropriate  legal  proceedings  to  have  terminated  its 
corporate  existence. 

The  Supreme  Court  of  the  United  States,  in  passing  upon  the  mean- 
ing of  the  words  "void  and  of  no  effecL!!-use8  this  language:  "  But 
these  words  are  often  used  in  statutes  and  legal  documents,  .  .  .  in_ 
the  sensejoJLyoidable  merely,  that  is,  capable  of  being  avoided,  and  not 
""asfmeaning  that  the  act  or  transaction  is  absolutely  a  nullity,  as  if  it 
never  had  existed,  incapable  of  giving  rise  to  any  rights  or  obligations 
under  any  circumstances.  (Ewell  v.  Daygs,  108  U.  S.  148.)  " 


COMMONWEALTH   V.   UNION,   ETC.   INS.   CO.  369 

Holding,  as  we  do,  that  the  forfeiture  clause  in  the  act  of  1867  was 
not  self-executing,  we  find  in  the  various  acts  amending  the  act  of 
1867  repeated_vvaivers, by  the  legislature  of  the  failure  of  the  bridge 
Compaq-  to  begin  its  work  within  two  years  from  the  passage  of  the 
act  of  186£. 

[The  learned  Judge  then  referred  to  acts  of  1871,  1879,  1885,  and 
1892.] 

[Opinion  on  other  points  omitted.]  Order  affirmed. 


COMMONWEALTH  v.  UNION,  &c.  INS.  CO. 

1809.     5  Mass.  230.1 

THIS  was  a  motion  for  a  rule  upon  the  defendants  to  shew  cause  why 
the  /Solicitor  General  should  not  be  directed  to  file  an  information  in 
the  nature  of  a  quo  warranto  against  them,  that  the  said  company 
might  be  dissolved,  and  their  corporate  powers  be  adjudged  void.  The 
motion  was  made  by  Sullivan  in  behalf  of  seventeen  persons  alleging 
themselves  to  be  members  of  the  corporation,  .  .  . 

Jackson,  for  defendants. 

The  Solicitor  General,  for  the  relators  (but  not  appearing  in  his 
official  character). 

PARSONS,  C.  J. 

Informations  of  this  nature  are  properly  grantable  for  the  purpose  of 
enquiring  into  the  election  or  admission  of  an  officer  or  member  of  a 
corporation,  when  moved  for  by  any  person  interested  in,  or  injured  by 
such  election  or  admission,  if  the  same  was  unduly  made.  And  upon 
such  information,  if  the  election  or  admission  was  illegal,  judgment  of  a 
motion  might  be  entered,  and  a  fine  might  also  be  imposed  on  the 
party  who  had  usurped  upon  the  commonwealth. 

In  this  case  the  parties  applying  for  the  rule  do  not  complain  of  any 
illegal  election  or  admission,  of  an}'  officer  or  member  of  the  corpora- 
tion :  but  fbp  objpnt  of  the  application  is  to  obtain  a  judgmenljrfjgr- 
feiture  of  the  jnipohispH  oj"  the  corporation,  and  a  seizure  of  them  .by 
the  commonwealth . 

We  arc  well  satisfied  that  a  corporation,  as  well  when  created  by 
charter  under  the  seal  of  the  commonwealth,  as  by  a  statute  of  the 
legislature,  may  by  nonfeazance  or  malfeazance  forfeit  its  franchises, 
and  that  b}-  judgment  on  an  information  the  commonwealth  may  seize 
them.  And  if  the  allegations  stated  in  the  motion  for  the  rule  in  this 
case  were  true,  and  the  commonwealth  had  caused  an  information  to 


Statement  abridged.    Arguments  and  part  of  opinion  omitted.  —  ED. 
24 


370  STATE  V.  FOURTH  N.  H.  TUKNPIKE. 

be  filed  and  prosecuted,  for  the  purpose  of  seizing  the  corporate  fran- 
cEIsesTor  such  malfeazauce,  judgment  for  those  causes  might  have 
been  rendered  for  the  commonwealth. 

But  an  information  for  the  purpose  of  dissolving  the  corporation,  or 
of  seizing  its  franchises,  cannot  be  prosecuted  but  by  the  authority  of 
the  commonwealth,  to  be  exercised  by  the  legislature,  or  by  the  attor- 
ney or  solicitor  general,  acting  under  its  direction,  or  ex  officio  in  its 
behalf.  For  the  Common  wealth  may  waive  any  breaches  of  any  condi- 
tion expressed  or  implied,  on  which  the  corporation  was  created ;  and 
we  cannot  give  judgment  for  the  seizure  by  the  commonwealth  of  the 
franchises  of  any  corporation,  unless  the  comn™nwpn1f;h  hp  n,  party  iu 
interest  to  the  suit,  and  thus  assenting  to  the  judgment. 

This  distinction  between  informations  in  the  nature  of  a  quo  warranto, 
to  impeach  any  election  or  admission  of  a  corporate  officer  or  member, 
and  informations  to  dissolve  a  corporation  is  well  settled,  and  upon 
sound  principles  of  law.1  Rule  discharged. 


STATE  v.  FOURTH  N.   H.   TURNPIKE. 

1844.     15  New  Hampshire,  162.2 

INFORMATION  in  the  nature  of  quo  warranto,  filed  by  the  Attorney 
General  against  the  defendants,  and  charging  them  with  usurping  the 
privilege  and  franchise  of  maintaining  a  toll  gate  and  demanding  and 
receiving  tolls. 

The  case  came  before  the  Court  upon  the  state's  demurrer  to  the  de- 
fendants' rejoinder.  Upon  the  pleadings  the  following  facts  appeared : 

The  defendants  were  incorporated  in  1800,  with  power  to  maintain  a 
turnpike  road  and  collect  tolls.  Soon  after  incorporation,  they  built  the 
road  and  established  toll  gates.  The  charter  enacts,  that,  at  the  end 
of  every  six  years  after  the  setting  up  of  any  toll  gate,  an  account  j)f 
"the  expenditures  and  profits  of  theroad  shall  be  laid  before  tEeTegisla- 
ture,  under  forfeiture  of  th°  pri"iteges_  of  said  act  in  future.  No  ac- 
counts were  furnished  until  1830.  In  1830,  1836,  and  1842,  accounts 
were  laid  before  the  legislature,  and  were  received  by  the  legislature  as 
sufficient  and  satisfactory.  In  1833  an  act  was  passed  authorizing 
defendants  to  change  the  route  of  the  road  in  certain  towns.  The 
defendants  accepted  this  act,  and  changed  the  route  at  great  expense. 

Perley,  for  defendants. 

Walker,  Attorney  General,  for  state. 

GILCHRIST,  J.  The  charter  makes  it  the  duty  of  the  corporation  to 
lay  before  the  legislature,  at  the  end  of  every  six  years  after  the  setting 

1  Rex  v.  Corporation  of  Carmarthen,  2  Burr.  869. 

2  Statement  abridged.    Argument  omitted.  —  ED. 


STATE  V.  FOURTH  N.  H.  TURNPIKE.  371 

up  of  any  toll-gate,  an  account  of  the  expenditures  and  profits  of  the 
road,  under  the  penalty  of  forfeiting  the  privileges  of  the  act  in  future. 
These  accounts,  however,  were  not  submitted  until  the  years  1830,  1836 
and  1842,  in  which  years  the}-  were  submitted  to  the  legislature,  and 
accepted  by  then}  as  sufficient  and  satisfactory.     In  the  year  1833  the  / 
legislature  passed  an  act  authorizing  the  corporation  to  change  the/ 
route  of  their  road  in  certain  places.     These  are  the  facts  laid  before' 
us,  upon  which  we  are  to  determine  whether  the  defendants  are  now 
an  existing  corporation. 

The  accounts  not  having  been  laid  before  the  legislature,  the  penalty 
of  forfeiture  was  incurred  in  terms.  But  the  subsequent  accounts  were 
accepted  by  the  legislature  as  sufficient  and  satisfacton',  and  farther 
powers  were  conferred  upon  the  defendants  by  the  act  of  1833.  Has 
the  legislature  power^  to  waivejhejorfeiture  ?  And  if  it  has^  do  these" 
fags  amount  to  suclTwaiver?  These  are  the  questions  presented  to  us 
by  the  pleadings. 

The  doctrine  of  the  waiver  of  a  forfeiture  by  the  legislature  by  sub- 
sequent legislative  acts  does  not  apply,  if,  by  the  terms  of  the  charter, 
the  franchise  absolutely  determines  on  failure  to  perform  the  condition  ;  ^ 
for  as  in  such  case  the  corporation  has  ceased  to  exist,  the  doctrine  of 
waiver  is  inapplicable.  The  charter  in  this  case  provides  that  the 
accounts  shall  be  laid  before  the  legislature,  "under  forfeiture  of  the 
privileges  of  the  act  in  future."  The  meaning  of  this  is,  thatthe_fojtL_ 
feiture  shall  be  proved  m  the  regular, 
tion_and  proseculiuu  uf  proccod4«gs~imhe__csta1jlichod  cout;6&f-  .such 
neglect  ^^t.hisj^jj^shaJLbe__gn.ns^  of  forfeiture^  It  probably  would 
not  be  competent  for  a  debtor  of  the  corporation,  when  sued,  to  set  up 
b}*  way  of  defence  that  the  charter  of  the  corporation  was  forfeited, 
unless  the  forfeiture  had  been  established  by  the  judgment  of  this  court. 
Chester  Glass  Co.  vs.  Dewey,  16  Mass.  102 ;  Hank  of  Niagara  vs. 
Johnson,  8  Wend.  645  ;  The  People  vs.  The  Manhattan  Co.,  9  Wend. 
382.  That  is  a  matter  to  be  judiciall}'  tried  and  determined,  and  not 
to  be  inquired  into  collaterally.  Where  a  charter  imposes  the  dut}'  of 
making  stated  returns  of  the  expenditures  and  profits,  the  government 
alone  can  enforce  a  forfeiture  for  a  neglect  of  the  duty.  Peirce  vs. 
Somersworth,  10  N.  H.  Rep.  369  ;  The  State  vs.  Carr,  b  N.  H.  Sep. 
367.  In  the  case  of  the  Bear  Camp  River  Co.  vs.  Woodman,  2 
Greeril.  404,  the  charter  was  to  become  void,  if,  at  the  end  of  one  j*ear, 
the  river  should  not  be  cleared  of  certain  obstructions.  In  an  action 
of  assumpsit  to  recover  tolls  of  the  defendant,  he  offered  to  prove  that 
the  removal  of  the  obstructions  had  never  been  effected  ;  but  the  evi- 
dence was  rejected  at  the  trial,  and  the  ruling  was  held  to  be  correct. 
This  case  affords  a  strong  illustration  of  the  necessit}-  of  specific  judicial 
proceedings  for  the  purpose  of  causing  the  charter  to  be  declared  for- 
feited. And_JiL-tbe_case  before_ug,  we  think  that  by  the  omissinq_to 
laj-  the  accounts  before  the  legislature,  thecorporation  did  not,  ipscL 
facto,  cease  to  exist,  buTproceedings  must  have  been  instituted,  to 


372  STATE   V.   FOURTH   N.   H.   TURNPIKE. 

establish  the  fact  that  the  penalty  of  forfeiture  was  incurred.  Rex  vs. 
Pasmore,  3  T.  JR.  244.  A  quo  warranto  is  necessary  where  there  is 
a  body  corporate  de  facto,  who  take  upon  themselves  to  act  as  a  body 
corporate,  but,  from  some  defect  in  their  constitution,  cannot  legally 
exercise  the  powers  they  affect  to  use.  Ashhurst,  J.  Chancellor 
Kent  says  that  he  believes  there  is  no  instance  of  calling  in  ques- 
tion the  right  of  a  corporation,  as  a  bod}*,  for  the  purpose  of  declaring 
its  franchises  forfeited  and  lost,  but  at  the  instance  and  on  behalf  of 
the  government.  Slee  vs.  -Boom,  5  Johns.  Ch.  381.  In  The  People 
vs.  The  Manhattan  Co.,  9  Weyd.  382,  Mr.  Justice  Sutherland  says, 
"  where  the  corporation  expires  by  lapse  of  time,  it  may  be  otherwise, 
and  in  such  case  only."  A  corporation  may  forfeit  its  franchises  for_ 
misfeasance  or  nonfeasance.  but  t.hp  informnt.mn  for  t.tmt.  purpose  must_ 
"be  presented  under  the  autbnHty  of  the  State,  which  must  be  a  party 
to  the  suit  and  a  party  to  the  judgment  for  the  seizure  of  the  franchise.^ 
The  'Commonwealth  vs.  Union  Ins.  Co.,  5  Mass.  230 ;  Rex  vs. 
Amery,  2  T.  R.  515  ;  Vernon  /Society  vs.  Hills,  6  Cowen,  23. 

The  corporation,  then,  being  in  existence  in  the  year  1830,  did  the 
reception  of  the  accounts  and  the  passage  of  the  act  of  1833  constitute 
a  waiver  of  the  preexisting  ground  of  forfeiture,  so  that  it  cannot  now 
be  insisted  on?  It  is  said  expressh7,  by  Parsons,  C.  J.,  in  The  Com- 
monwealth vs.  Union  Ins.  Co.,  5  Mass.  232,  that  the  commonwealth 
may  waive  any  breaches  of  any  condition,  expressed  or  implied,  on 
which  the  corporation  was  created.  The  surrender  of  a  charter  can  be 
made  only  by  some  solemn,  formal  act  of  the  corporation,  and  will  be 
of  no  avail  until  accepted  by  the  government.  There  must  be  the 
same  agreement  of  the  parties  to  dissolve  that  there  was  to  form  the 
compact.  Morton,  J. ,  Boston  Glass  Man.  vs.  Langdon,  24  Pick. 
53.  If  jicts  of  the  legislature  recognize _fche  subsequent  _and.  continued 
existence  of  thejiorporntion,  anoh  recognition  will  he  a  waiy^1*  of  a  for- 
feiture.^^ The  People  vs.  The  Manhattan  Co.  In  the  case  of  The 
People  vs.  The  Kingstown  Turnpike  Co.,  23  Wend.  193,  it  was  held, 
that  an  act  extending  the  time  for  the  completion  of  the  road  was  not 
a  waiver  of  breaches  of  conditions  ;  for  such  was  not  expresslj'  declared 
to  be  the  intent  of  the  legislature,  nor  was  the  intent  necessarity  to  be 
implied  from  the  act.  From  this  position  Mr.  Justice  Cowen  dissented, 
and  held  that  a  statute  expressly  giving  time  to  complete  the  road  was 
equivalent  to  a  renewal  or  confirmation  of  the  original  charter. 

In  the  present  case,  the  legislature  did  not  expressly  declare  that 
they  recognized  the  corporation  as  in  existence,  or  confirmed  its  privi- 
leges, but  we  think  no  other  construction  can  be  given  to  their  proceed- 
ings. It  is  a  reasonable  doctrine,  that  a  breach  of  condition  may  be 
waived.  It  is  an  important  element  in  the  law  relating  to  landlord  and 
tenant.  In  Goodright  vs.  Davids,  Cowp.  803,  Lord  Mansfield  ob- 
served that  forfeitures  are  not  favored  in  law,  and  where  the  forfeiture 
is  once  waived  the  court  will  not  assist  it.  Coon  vs.  Brickett,  2  N".  II. 
Rep.  163  ;  Doe  vs.  Pritchanl,  5  B.  &  Ad.  765.  There  is  as  much 


PEOPLE   V.   PHCENIX   BANK.  373 

reason  for  considering  the  acts  of  a  legislative  body  as  a  waiver  of  a 
forfeiture,  as  there  is  for  giving  that  effect  to  the  act  of  a  landlord. 
The  State  can  claim  no  exemption  from  the  ordinary  rules  which_govern 
contracts,  and"  there  is  not  to  be  one  law  for  them  and  another  for  pri- 
vate persons^  The  legislature  accepted  the  accounts  laid  before  them 
in  1830,  and  the  subsequent  j^ears,  as  sufficient  and  satisfactory  ;  that 
is,  they  were  satisfied  with  the  accounts  as  a  sufficient  compliance  with 
the  charter.  The  act  of  1833  is  an  equally  clear  waiver  of  a  forfeiture. 
Notwithstanding  what  had  occurred,  they  authorized  the  corporation 
to  alter  the  route  of  their  road.  The  act  is  susceptible  ofjio  other_ 
construction  in  thisregard,  than  that  the  legislature  intended  to  waive" 
any  forfeiture  consequent  on  the  prior  omissions  of  the  corporation. 
If  they  had  Intended  to  insist  on  any  forfeiture,  the  act  certainly  would 
not  have  been  made.  The  act  was  intended  to  be  beneficial  to  the  corT 
poration.  But  it  would  not  have  been  so  unless  they  retained  the  other 
corporate  powers  necessary  to  enable  them  to  carry  into  effect  the  pur- 
poses of  the  act.  We  are,  therefore,  of  opinion  that  the  rejoinder  is  a 
sufficient  answer  to  the  replication,  and  that  upon  the  demurrer  there 
must  be  Judgment  for  the  defendants. 


PEOPLE  v.  PHCENIX  BANK. 

1840.     24  Wendell  (New  York),  43 1.1 

INFORMATION  in  the  nature  of  a  quo  warranto  against  the  defendants 
for  claiming  to  be  and  acting  as  a  corporation.  The  case  came  before 
the  Court  upon  a  demurrer  to  the  defendants'  rejoinder ;  which  alleged 
that  the  Governor  and  Senate  had  appointed  a  State  Director  of  the 
Bank  after  the  defendants  committed  the  acts  which  the  State  relied  on 
as  cause  of  forfeiture. 

S.  A.  Foote  and  Willis  Hall  (Attorney  General),  for  the  People. 

D.  Lord,  Jr.,  and  J.  Prescott  Hall,  for  defendants. 

BRONSON,  J.  No  question  has  been  made  upon  the  sufficiency  of  the 
replications.  The  case,  then,  comes  to  this :  the  attorney  general 
allegesjtbat  thejfefendants  have  forfeited  their* corporate  privileges  by 
taking  usury.  The  defendants  answer,  that  a  state  director  has  since 
been  appointed  by  the  governor  and  senate  ;  and_thig  act,  they  insist, 
amounts  to  a  waiver  or  pardon  of  the  forfeiture.  The  conclusion  does 
not  follow  from  the  premises. 

No  one  could  take  advantage  of  the  forfeiture  in  a  collateral  manner. 
It  could  only  be  asserted  by  a  direct  legal  proceeding  on  the  part  of 
the  government  to  dissolve  the  corporation.  Notwithstanding  the 

1  Statement  abridged.  —  ED. 


374  PEOPLE   V.   PHOENIX   BANK. 

existing  cause  of  forfeiture,  the  defendants  were  a  corporation  de  facto, 
and  might  continue  to  exercise  their  franchise  until  judgment  of  ouster 
should  be  pronounced  against  them.  In  the  mean  time,  it  was  the 
duty  of  the  governor  and  senate,  as  well  as  all  others,  to  treat  the 
defendants  as  a  legally  existing  corporation.  The  appointment  of  a 
state  director  was,  therefore  perfectly  consistent  with  the  intention  to 
/  continue  this  prosecution,  and  insist  on  the  forfeiture. 

Should  it  be  conceded  that  the  governor  and  senate  had  a  dispensing 
power  it  does  not  appear  that  the  power  has  been  exercised.  We  are 
not  authorized  to  follow  the  suggestion  of  the  defendants'  counsel,  and 
assume  that  the  appointment  was  made  for  the  purpose  of  waiving  the 
forfeiture.  There  is  no  such  allegation  in  the  rejoinder ;  and  besides, 
we  cannot  shut  our  eyes  to  the  fact  that  there  was  another  and  a 
sufficient  ground  for  the  exercise  of  the  appointing  power.  Indeed,  if 
the  public  officers  believed  that  the  defendants  had  violated  their 
charter,  they  had  a  cogent  reason  for  making  the  appointment,  to  the 
end  that  there  might  be  one  director  in  the  board  to  watch  over  the 
public  interests  until  the  forfeiture  could  be  asserted,  and  the  corpora- 
tion dissolved  in  the  forms  prescribed  by  law. 

Enough  has  been  said  to  dispose  of  this  case.  But  I  must  not  be^ 
understood_as__grlmit,t.ipg  that  the  governor  and  senate,  without  the 
concurrence  also  of  the  assembly,  had_anydispensing  power.  They 
had  no  more  authority  to  waive  or  pardon  the  forfeiture  than  any  other 
public  officer  or  body  of  men.  Indeed,  the  attorney  general  had  more 
power  over  this  matter  than  the  governor  and  senate  united  ;  for  if  he 
refused  to  prosecute,  the  wrong  charged  upon  the  defendants  would  go 
unpunished,  and  the  corporation  would  continue  to  exist  and  enjoy  its 
privileges  in  the  same  manner  as  though  there  had  been  no  violation  of 
the  charter.  Still,  the  neglect  to  prosecute  would  not  amount  to  a 
pardon ;  it  could  only  operate  as  a  waiver  so  long  as  the  omission  con- 
tinued, and  would  be  no  answer  to  a  quo  warranto  whenever  he,  or  his 
successor  in  office,  might  choose  to  insist  on  the  penalty. 

In  England,  where  corporations  may  be  created  by  royal  charter, 
the  king  can  pardon  a  forfeiture,  by  granting  restitution ;  but  he  has,  I 
think,  no  such  power  in  relation  to  corporations  created  by  act  of 
parliament.  The  King  v.  Amery,  2  T.  R.  568,  9.  Newling  v. 
Francis,  3  id.  189.  The  King  v.  Miller,  6  id.  277.  So  here,  where 
corporations  are  created  by  the  legislature,  that  body  can  waive  the 
forfeiture,  by  ratifying  and  confirming  the  original  grant.  The  People 
v.  The  Manhattan  Company,  9  Wendell,  351.  But  no  other  body  of 
men  has  any  such  dispensing  power.  The  franchise  is  granted  upon 
condition  that  it  shall  become  void  in  case  of  misuser ;  and  although 
the  corporation  will  continue  to  exist  until  the  forfeiture  is  asserted  in 
the  forms  prescribed  by  law,  the  condition  can  onlr  bechanged,  or  the 
penalty  released,  \>y  the  power  which  made  the  original  grant.  The 
legislature  may^  perhaps,  delegate  its  authority  to  pardon  the  offence ; 
but  that  has  not  been  done. 


STATE   V.   OBERLIN   BUILDING  AND   LOAN   ASSOCIATION.        375 

The  rejoinder  does  not  show  that  any  act  has  been  done  which  is 
inconsistent  with  the  assertion  of  the  forfeiture ;  and  if  it  were  other- 
wise, the  governor  and  senate,  without  the  concurrence  of  the  assembh*, 
had  no  dispensing  power. 

Judgment  for  the  people. 


STATE  v.  OBERLIN  BUILDING  AND  LOAN  ASSOCIATION. 

1879.     35  Ohio  State,  258.1 

Quo  WARRANTO.  Information  filed  by  the  Attorney  General,  on  the 
relation  of  Colburn,  praj'ing  for  a  judgment  of  ouster  against  the 
defendant  corporation.  Colburn  is  a  member  of  the  corporation,  and 
was  formerly  a  director.  The  case  was  heard  on  the  pleadings,  an 
agreed  statement  of  facts,  and  certain  testimony. 

Isaiah  Pillars,  Attorney  General,  and  N'.  L.  Johnson,  for  plaintiff. 

I.  A.  Webster,  and  Geo.  K.  Nash,  for  defendant. 

OKETT,  J.  [After  quoting  various  sections  of  the  act  under  which 
the  corporation  was  organized,  and  stating  certain  facts  as  to  the  con- 
duct of  the  corporation.] 

On  this  state  of  facts  our  conclusions  are  as  follows  :  — 

1.  That  the  association  has  abused  its  corporate  powers  in  several 
particulars,  admits  of  no  doubt.  It  has  refused  to  loan  its  funds  to  its 
members,  and  it  has  established  such  rules  and  regulations,  and  so 
conducted  its  business  by  dividing  its  funds  and  otherwise,  as  to  pre- 
vent the  loan  of  its  funds  to  a  member,  under  the  system  of  competi- 
tive bidding  contemplated  in  the  statute,  and  provided  for  in  the 
by-laws  of  the  company.  It  has,  indeed,  loaned  its  funds,  in  many 
instances,  to  persons  who  were  not  members  of  the  association.  The 
illegality  of  such  a  course  is  clearly  stated  in  State  ex  rel.  v.  Greenville 
Building  and  Saving  Association,  29  Ohio  St.  92. 

Again,  the  association  has  been  in  the  habit  of  borrowing  money  for 
the  purpose  of  lending  it.  We  do  not  deny  that  corporations  possess 
the  power  to  borrow  monej7  which  may  be  needed  in  the  transaction  of 
their  necessary  business ;  but  these  transactions  fall  within  no  such 
principle.  The  money  to  be  loaned  by  associations  like  this  if,  as  here, 
deposits  are  not  received,  can  only  be  properly  accumulated  in  the 
manner  contemplated  by  the  statute,  that  is  by  dues,  fines,  premiums, 
and  interest ;  and  the  acts  complained  of,  and  fully  proved  by  the  tes- 
timony, cannot  be  readily  distinguished  from  the  business  of  a  banker, 
They  are  clearly  illegal. 

Equally  illegal  was  the  act  of  dividing  the  money  and  securities 
among  certain  stockholders.  It  was  opposed  to  the  principle  upon 

1  Statement  abridged.    Part  of  opinion  omitted.  —  ED. 


376         STATE   V.   OBERLIN   BUILDING   AND   LOAN   ASSOCIATION. 

which  such  associations  are  organized.  It  was,  indeed,  even  if  it  had 
been  done  with  perfect  impartiality,  a  plain  violation  of  the  statute, 
which  contemplates  that  no  such  division  shall  be  made  until  "  said 
shares  are  fully  paid." 

Finally,  it  was  illegal  for  the  association  to  traffic  in  shares  of  its  own 
stock.  We  do  not  deny  that  a  corporation  has  power  to  receive  shares 
of  its  stock  as  security  for  a  debt  or  other  similar  purpose  ;  but  here 
the  association  purchased  its  own  shares  of  stock,  in  several  instances, 
for  the  purpose  of  disposing  of  them  to  persons  not  intending  to  become 
members  of  the  association,  with  a  view  of  making  such  shares  the 
basis  of  loans  to  such  persons.  The  law  will  not  uphold  such 
transactions. 

2.  The  association  compromised  with  several  of  its  members,  and 
released  them  from  further  obligation  to  the  corporation,  as  well  on 
account  of  indebtedness  for  loans,  as  on  subscription.     We  have  ex- 
amined the  evidence,  and  we  do  not  find  there  was  any  want  of  good 
faith  in  these  transactions.     The  interest  of  the  stockholders  as  well  as 
the  public,  seems  to  have  been  kept  in  view.     Of  course,  without  this 
such  acts  could  not  be  upheld  ;  but  we  are  not  able  to  find  in  the  statute 
any  inhibition  of  the  power  to  make  such  compromises,  and,  on  the 
fullest  consideration,  we  unite  in  holding  that  the  power  exists. 

3.  Where  a  corporation  has  been  guilty  of  acts  which,  by  statute, 
are  made  a  cause  of  forfeiture  of  its  franchise  to  be  a  corporation,  this 
court  has  no  discretion  to  refuse  such  judgment.    State  ex  rel,  v.  Penn. 
&   0.    Canal   Co.,  23   Ohio  St.  121.     But,   in  other  cases,  we  are 
vested  with  discretion  to  determine  whether  judgment  of  ouster  of  the 
franchise  to  be  a  corporation  shall  be  rendered,  or  whether  the  corpora- 
tion shall  be  ousted  from  jihe  exercise  of  the  powers  illegally  assumed. 
Witl^some  hesitation,  a  majority  of  the  court  have  reached  the  conclu- 
sion that  it  will  be  for  the  intcresj  of  the  stockholders,  as  well  as  the 
public,  that  we  should  render  the  latter  instead  of  the  former  judgment. 
The  evidence  satisfielTus  that  if  the  cofp^ratiorris~permitted  to  wind  up 
its  affairs,  the  work  will  be  accomplished  in  a  few  months ;  but  if  the 
association  should  be  ousted  from  its  franchise  to  be  a  corporation,  we 
would  be  required  to  appoint  trustees  under  the  act  of  1878  (75  Ohio 
L.  817,  22;  Rev.  Stats.  G781),  and  this  would  occasion  delay  and 
involve  increased  expense.    Accordingly,  the  corporation  will  be  ousted 
from  the  exercise  of  its  powers  referred  to  in  the  first  paragraph  of  the 
syllabus,  and  from  the  power  of  permitting  an}7  member  to  hold  in  his 
own  right"  more  than  twenty  shares  of  stock,  but  not  from  its  franchise 
to  be  a  corporation,  nor  from  the  exercise  of  the  power  referred  to  in 
the  second  paragraph  of  the  syllabus. 

GILMORE,  C.  J.     I  dissent  only  as  to  the  judgment  entered.     Such 
flagrant  and  persistent  violations  of  corporate  powers  and  duties  as  are 
shown  in  this  case,  in  my  opinion,  call  for  and  require  an  application 
of  the  severest  penalties  of  the  law.    ^The  judgment  should  oust  jhe_ 
defendant  from  being  a  corporation. 

Judgment  of  ouster  as  to  specified  powers. 


PEOPLE  EX  REL.  ATTORNEY  GENERAL  V.  IMPROVEMENT  CO.  377 


PEOPLE  EX  BEL.  ATTORNEY  GENERAL  v.  KANKAKEE 
RIVER  IMPROVEMENT  CO. 

1882.     103  Illinois,  491. 1 

INFORMATION  in  the  nature  of  a  quo  warranto  ;  alleging  that  defend- 
ant, without  any  warrant,  was  exercising  the  power  of  controlling  the 
navigation  of  the  Kankakee  and  Iroquois  Rivers,  and  collecting  tolls, 
and  requiring  the  company  to  show  cause  by  what  warrant  it  claimed 
to  exercise  such  powers. 

To  this  information  the  defendant  filed  a  plea,  which  was  demurred 
to.  The  Circuit  Court  overruled  the  demurrer,  and  gave  judgment  i'or 
defendant,  dismissing  the  information.  Plaintiff  appealed. 

The  facts  set  out  in  the  plea  were  in  part  as  follows :  — 

In  1847,  an  act  was  passed  incorporating  the  Kankakee  and  Iroquois 
Navigation  Compan}',  with  power  to  improve  the  navigation  of  both 
rivers  from  certain  points  up  to  the  Indiana  State  line.  No  time  was 
prescribed  for  completing  an}'  part  of  the  improvements.  Prior  to 
1865  improvements  on  a  part  of  the  Kankakee  river  had  been  made 
and  used.  In  1865  an  amendatory  act  was  passed,  and  was  accepted 
by  the  corporation.  Section  6  of  this  act  provides  that  "  said  company 
shall  lock  and  slack-water  said  Kankakee  river  from  Kankakee  City  to 
the  east  line  of  the  State  of  Illinois,  within  eight  years  from  the  pass- 
age of  this  act,  .  .  ."  The  plea  admits  that  the  improvement  from 
Kankakee  City  to  the  east  line  of  the  State  of  Illinois  has  not  been 
commenced,  and  is  no  longer  in  contemplation  by  the  defendant.  The 
defendant  corporation  was  formed  about  1879  by  persons  who  had 
purchased  at  a  mortgage  foreclosure  sale  the  franchise,  improvement, 
and  real  estate  of  the  original  corporation. 

James  McCartney,  Attorney  General,  for  the  people. 
G.  D.  A.  Parks,  for  appellee. 

SHELDON,  J. 

We  can  see  here  but  one  entire  franchise  for  the  improvement  of 
these  streams,  and  that  this  obligation  to  make  the  improvement  above 
Kankakee  City  was  a  condition  annexed  to  this  entire  franchise.  And 
we  can  not  admit  the  idea,  so  ably  and  ingeniously  pressed_uj2Qnji8,  of 
tEe  divisibility  ofthe  franchise,  tha^here^be^me^se^rsLte^  independ- 
ent  franchise  as"  to  the  completed  portionof  the  improvemenLbclow 
Wilmington,  and  aTTIke'onVas'to  the  portion  of  the  improvement  above 
Kankakee  City,  to  which  latter  only  the  condition  was  annexed,  and 
that  it  was  the  franchise^ajjothislastigamed  portion  of  the  improve- 
ment only  which  was  forfeitable  for  Breach  of  the  condition.  We  think 
the  non-compliance  with  the  requirement  in  question  was  cause  of  for- 

1  Statement  abridged.    Arguments  and  part  of  opinion  omitted.  —  ED. 


378   PEOPLE  EX  REL.  ATTORNEY  GENERAL  V,  IMPROVEMENT  CO. 

feiture  of  the  entire  franchise.  An  abuse  in  a  particular  department 
of  an  entire  franchise  is  cause  of  forfeiture  of  the  whole  franchise. 
Angell  &  Ames  on  Corp.  sec.  776. 

The  hardship  upon  the  company  of  enforcing  a  forfeiture  is  urged  as 
a  reason  against  applying  this  remedy.  This  is  the  common  argument 
addressed  to  courts  in  these  cases,  and  the  answer  they  make  is,  that 
the  appeal  is  made  to  the  wrong  forum,  —  that  this  is  a  question  for  the 
legislature  that  prescribed  the  requirements  of  the  charter.  The  courts 

^  have  no  dispensing^power ;  that  the  only  questions^or^_court  in  such 
cases  are,  is  the  act  required,  and  baa  it  been  performed.  Yielding  to 
such  considerations  of  Tiardships  would  be  a  doing  away  with  the  estab- 
lished legal  remedy  of  forfeiture  for  the  breach  of  conditions  annexed 
to  estates.  Inconvenience  is  the  necessary  result  of  the  application  of 
such  a  remedy.  It  is  held  to  be  most  important  to  the  public  interest 
that  the  grantees  of  public  franchises  should  be  held  to  a  faithful  per- 
formance of  the  obligations  which  they  assume,  and  to  secure  this, 
courts  must  administer  the  prescribed  remedy  in  case  of  failure. 

Lastly,  the  court  is  invoked  to  exercise  its  discretionaiy  power  under 
the  statute,  and  only  assess  a  fine,  the  statute  providing  that  instead  of 
judgment  of  ouster  from  a  franchise  for  an  abuse  thereof,  unless  the 
court  is  of  the  opinion  that  the  public  good  demands  such  judgment,  a 
fine  may  be  assessed  instead.  Had  there  been  but  the  omission  of  some 
duty  of  minor  importance,  the  alternative  of  a  fine  might  properly  be 
considered  ;  but  the  non-performance  here  is  of  a  thing  which  is  of  the 

s  essence  of  the  contract,  —  it  goes  to  the  object  of  the  incorporation, 
not  doing  the  very  thing  the  performance  of  which  was  the  purpose  and 
object  for  which  the  company  was  instituted.  It  is  failure  by  the  cor^ 
poration  to  act  up  to  the  end  of  its  creation.  The  demand  of  public 
good  is  nothing  less  than  that  there  should  be  a  resumption  by  the 
State  of  the  corporate  franchise  of  which  there  has  been  such  misuser,  — 
that  the  company  should  be  made  to  give  way,  so  as  to  afford  oppor- 
tunit}*,  through  some  other  instrumentality,  for  the  accomplishment  of 
this  work  of  public  advantage,  the  improvement  of  the  navigation  of 
these  two  rivers,  or  at  least  of  the  Kankakee,  to  the  Indiana  State  line. 

Being  of  opinion  the  demurrer  to  the  plea  should  have  been  sustained, 
the  judgment  of  the  Circuit  Court  is  reversed  and  the  cause  remanded. 

Judgment  reversed. 


WHEELER  V.   PULLMAN   IEON   AND   STEEL   CO.  379 


WHEELER  v.  PULLMAN  IRON  &  STEEL  CO. 

1892.     143  Illinois,  197.1 

BILL  IN  EQUITY  by  two  stockholders  in  the  Pullman  Iron  &  Steel 
Co.  against  said  company  and  certain  other  defendants  ;  praying  (inter 
alia)  that  the  corporation  be  dissolved  and  its  business  closed  up ;  that 
a  receiver  be  appointed ;  and  that  an  accounting  be  had  between  the 
parties  growing  out  of  matters  stated  in  the  bill.  A  demurrer  to  the 
bill  was  sustained  and  the  bill  dismissed.  On  appeal  to  the  Appellate 
Court  this  decree  was  affirmed.  Plaintiffs  now  prosecute  this  further 
appeal. 

Ullman  <&  Hacker,  for  appellants. 

John  S.  Runnetts,  and  William  Burry,  for  appellees. 

SHOPE,  J.  Without  pausing  to  consider  the  ground  of  objection 
that  the  bill  is  multifarious,  we  are  of  opinion  that  the  demurrer  thereto 
•was, on  other  grounds,  property  sustained,  and  complainants  electing  to 
stand  by  their  bill,  it  was  property  dismissed. 

It  is  insisted  that  the  bill  may  be  maintained  upon  either  of  two 
grounds  :  First,  as  a  bill  to  dissolve  the  corporation,  wind  up  its  affairs, 
and  distribute  its  assets ;  and  second,  as  a  bill  for  an  accounting  be- 
tween this  corporation  and  the  Pullman  Palace  Car  Company  and  other 
creditors. 

In  the  absence  of  statutory  authority,  courts  of  chancery  had  no 
jurisdiction  to  decree  a  dissolution  of  a  corporation  by  declaring  a  for-  — 
feiture  of  its  franchise,  either  at  the  suit  of  an  individual  or  of  the 
State.  VerplancJc  v.  Merchants'  Ins.  Co.  1  Edw.  Ch.  84 ;  Doyle  v. 
Peerless  Petroleum  Co.  44  Barb.  239 ;  Folger  v.  Columbian  Ins.  Co. 
99  Mass.  274;  Attorney  General  v.  Bank  of  Niagara,  1  Hopk.  354; 
Denike  v.  New  York,  etc.  80  N.  Y.  605.  The  mode  of  enforcing  a 
forfeiture  of  the  charter  at  common  law  was  by  scire  facias  or  quo 
tearranto  in  courts  of  law  only,  and  at  the  suit,  only,  of  the  sovereign.  " 
The  judgment  in  such  cases,  at  law,  relates  solely  to  the  right  to  exer- 
cise the  corporate  franchise,  and  operates  to  extinguish  corporate  ex- 
istence. In  respect  of  trade  corporations,  independent!}1  of  statutory 
provision,  and  notwithstanding  the  dissolution  of  the  corporation,  its 
assets  belong  to  those  who  contributed  to  its  capital  and  for  whom  it 
stood  as  representative  in  the  business  in  which  it  was  engaged,  and 
are  treated  in  equity  as  a  trust  fund,  to  be  administered  for  the  benefit 
of  the  bona  fide  holders  of  stock,  subject  to  the  just  claims  of  creditors 
of  the  corporation.  Morawetz  on  Corporations,  1032,  and  cases  cited. 

The  necessity  for  invoking  the  aidoj^a  court  of  equitvjifter  judg- 
ment ofjbrfeiture  at  law",  that  conrtalone  being  competent  to  reach 
and  administer  the  fund,  has  led  to  statutory  enactments  vesting  courts  * 

1  Statement  abridged.    Arguments  and  part  of  opinion  omitted.  —  ED. 


380  WHEELER   V.   PULLMAN   IRON   AND   STLEL   CO. 

of  equity  with  jurisdiction  to  decree  a  dissolution  of  the  corporation 
and  to  wind  up  its  affairs,  in  given  cases,  at  the  suit  of  an  individual 
beneficiary  of  the  fund.  The  power  to  confer  such  jurisdiction  by  stat- 
ute, as  one  of  the  powers  over  corporations  reserved  by  the  State,  has 
been  uniformly  recognized,  and  nowhere  more  clearly  than  in  this  State, 
(  Ward  v.  Farwell  et  al.  97  111.  593  ;  Chicago  Mutual  Life  Indemnity 
Ass.  v.  Hunt*  127  id.  257,)  and  whenever  the  power  of  the  court  of 
chancery  has  been  properly  invoked  the  jurisdiction  has  been  sus- 
tained. Life  Ass.  of  America  v.  Fassett,  102  111.  315  ;  Chicago  Life 
Ins.  Co.  v.  The  Auditor,  101  id.  82 ;  Mining  Co.  v.  Mining  Co.  116 
id.  170,  and  cases  supra. 

By  the  25th  section  of  the  statute  for  the  incorporation  of  companies 
for  pecuniary  profit,  being  the  only  section  applicable  here,  it  is  pro- 
vided :  "  If  any  corporation,  or  its  authorized  agents,  shall  do  or  re- 
frain from  doing  any  act  which  shall  subject  it  to  a  forfeiture  of  its 
charter  or  corporate  powers,  or  shall  allow  any  execution  or  decree  of 
any  court  of  record  for  the  payment  of  mone}-,  after  demand  made  by 
the  officer,  to  be  returned,  '  no  property  found,'  or  to  remain  unsatis- 
fied not  less  than  ten  da}*s  after  such  demand,  or  shall  dissolve  or 
cease  doing  business,  leaving  debts  unpaid,  suits  in  equity  maybe 
brought  against  all  persons  who  were  stockholders  at  the  time._or  m 
any  way  liable  for  th e^ebj^jifJJie^corporation^^byJpining  the__ corpora- 
jion^in  such  snitsT^etc.  And  after  providing  for  pro  rata  liability  of 


stockholders  upon  unpaid  subscriptions,  etc.,   and  for  enforcing  the 
same,  proceeds  :  u  And  courts  of  equity  shall  have  full  power^  on  good, 
cause  shown,  to  dissolve^  or  close  up  the  busin£§sjof  any_jKxrporation,  to 
appoint  a  feceTveYlQ^reforT' with  authority  to  wind  up  its  affairs. 

It  is  not  pretencfect  that  the  facts  alleged  bring  the  bill  within  the 
provisions  of  the  clause  of  the  statute  first  quoted.  It  is  not  alleged, 
nor  are  facts  set  forth  showing,  that  any  of  the  causes  exist  for  which 
bills  in  equity  are  by  this  statute  authorized  to  be  filed.  The  bill  in- 
vokes, not  the  power  conferred  03'  the  statute,  but  the  general  chancery 
powers  of  the  court.  But  it  is  said,  in  effect,  that  as  the_gecond  clause 
of  the  statute  quoted  gives  courts  of  equity  power  to  decree  the  disso-^ 
lution  of  a  corporation  "on  good  cause  shown,"  it  may  exercise  that 
jurisdiction  whenever  the  interests  of  the  stockholders,  or  any  of  them, 
in  equity  and  good  conscience  demand  it.  We  do  not  think  the  statute 
capable  of  that  construction-  It  is  clear  that  the  purpose  of  the  pro- 
vision was  to  enable  the  court,  in  all  cases  in  which  the  jurisdiction  of 
the  court  was  properly  invoked  under  the  statute,  to  afford  complete 
relief.  By  the  first  clause  a  remedy  is  provided  by  which  the  assets  of 
the  corporation,  in  the  cases  enumerated  in  the  statute,  may  be  applied 
in  payment  of  its  liabilities,  and  if  insufficient  therefor,  that  subscribers 
for  and  holders  of  unpaid  stock  of  the  corporation  may  be  compelled  to 
contribute  to  the  paj'ment  of  an}-  balance  of  corporate  indebtedness 
after  the  application  of  the  corporate  effects,  without  first  procuring 
a  judgment  of  forfeiture  at  law.  No  judgment  forfeiting  the  charter  of 


ATTORNEY   GENERAL  V.   TUDOR  ICE   CO.  381 

the  corporation  is  necessary  to  authorize  the  court  to  afford  this  relief, 
but  by  the  later  provision  the  court  may,  in  cases  where  cause  of  for- 
feiture exists,  declare  the  same,  and  by  its  decree  dissolve  the  corpora- 
tion, and  through  its  receiver  administer  and  distribute  the  corporate 
estate,  thus  making  the  remedy  in  equity,  in  such  cases,  complete. 
(/St.  Louis,  etc.  Mining  Co.  v.  Mining  Co.  116  111.  170;  Ailing  v. 
Wenzel,  133  id.  264.)  As  said  by  this  court,  in  construing  this  pro- 
vision of  the  statute,  in  Chicago  Mutual  Life  Ins.  Co.  v.  Hunt,  127 
111.  274 :  "  Courts  of  equity  are  given  full  power,  on  good  cause  shown, 
as  a  portion  of  the  relief  provided  for  by  that  section,  to  dissolve  or 
close  up  the  business  of  the  corporation  and  to  appoint  a  receiver  of 
its  effects."  We  are  of  opinion  that  it  is  only  u  as  a  portion  of  the 
rejigfjDrovided  for  byjjiat  section  "  that  the  power  to  dissolve  the  cor- 
poration can  beonxxxkedi Moreover,  "  good  cause  "  for  dissolving  the 
corporation  would  necessarily  be  a  legal  cause,  —  a  cause  for  which  the 
sovereign  authority  might  by  law,  resume  the  franchise  granted..  It 
c"5n  not  be  presumed  that  the  legislature  intended,  by  the  use  of  the 
language  here  employed,  to  authorize  a  decree  forfeiting^  the  corporate 
franchise  for  causcs~tor  wpicn  the  State  might  not_procure  judgment  o_f 
forfeitui'e  at  law.^  The  bill  is  not  maintainable  upon  this  ground. 
[Remainder  of  opinion  omitted.] 

Judgment  affirmed. 


ATTORNEY  GENERAL  v.  TUDOR  ICE  CO. 

1870.     104  Mass.  239. 

INFORMATION  in  equity  by  the  attorney  general,  on  behalf  of  the 
Commonwealth,  and  at  the  relation  of  Richard  Price,  to  restrain  the 
defendants  from  engaging  in  or  carrying  on  any  business  other  than 
the  cutting,  storing  and  selling  of  ice.  Hearing,  on  a  motion  for  an 
injunction,  before  the  chief  justice,  who  reported  the  case  as  follows: 

"The  company  was  organized  in  1861,  under  the  Gen.  Sts.  c.  61, 
for  the  purpose  of  cutting,  storing  and  selling  ice.  Its  capital  stock 
was  fixed  at  $360,000.  It  has  carried  on  this  business  ever  since,  but 
has  also  carried  on  various  other  branches  of  business ;  has  been  in  the 
habit  of  chartering  vessels  for  the  East  Indies,  loading  them  with  ice 
so  far  as  was  proper,  and  completing  the  cargo  by  purchasing  and 
exporting  kerosene  oil,  tobacco,  rosin  and  lumber ;  and  has  also  im- 
ported merchandise  of  various  kinds,  including  paddj-,  jute,  linseed  and 
tea.  It  has  also  erected  buildings,  and  placed  machinery  in  them, 
which  cost  about  $400,000.  Some  of  the  machinery  is  for  the  manu- 
facture of  tobacco,  but  the  manufacture  was  discontinued  about  two 
years  ago.  Some  of  it  is  for  cleaning  rice,  some  for  the  manufacture 


382  ATTORNEY   GENERAL  V.   TUDOR   ICE  CO. 

of  jute  into  gunny  cloth,  and  some  for  the  manufacture  of  linseed  into 
oil.  These  branches  of  business  it  still  carries  on,  and  the  capital 
invested  in  them  is  three  or  four  times  larger  than  its  capital  stock. 
The  business  is  connected  with  the  exportation  of  ice,  and  has  increased 
the  profits  of  the  company,  but  does  not  appear  to  be  necessary  to  its 
legitimate  business.  It  has  imported  two  cargoes  of  tea,  worth  $300,000, 
which  had  no  connection  with  the  ice  trade.  It  does  not  appear  that 
an}'  of  the  creditors  of  the  company  are  in  danger  of  losing  by  it,  and 
there  is  no  objection  to  its  proceedings,  except  that  they  are  not 
authorized  by  its  act  of  incorporation  and  are  alleged  to  be  against 
public  policy  for  that  reason.  I  report  the  case  for  determination  upon 
the  questions,  whether  this  information  in  equity  can  be  maintained, 
and,  if  it  can  be  maintained,  whether  a  temporary  injunction  ought  to 
be  issued,  upon  the  facts  above  stated." 

&.  Bartlett,  for  the  Attorney  General. 

C.  B.  Goodrich  &  H.  W.  Paine,  for  the  defendants. 

GRAY,  J.  This  court,  sitting  in  equity,  does  not  administer  punish- 
ment or  enforce  forfeitures  for  transgressions  of  law  ;  but  its  jurisdiction 
is  limited  to  the  protection  of  civil  rights,  and  to  cases  in  which  full 
and  adequate  relief  cannot  be  had  on  the  common  law  side  of  this  court 
or  of  the  other  courts  of  the  Commonwealth. 

The  Tudor  Ice  Company  is  a  private  trading  corporation.  It  is  not 
in  any  sense  a  trustee  for  public  purposes.  This  is  not  a  suit  by  a 
stockholder  or  a  creditor.  The  acts  complained  of  are  not  shown  to 
have  injured  or  pmjantrprpfi  any  rights  of  tilif!  jjjjblic,  or  of  any  individual 
or  other  corporation^;  and  cannot,  upon  any  legal  construction,  be  held 
to  constitute  a  nuisance.  It  is  expressly  stated,  in  the  report  of  the 
chief  justice,  that  "  it  does  not  appear  that  an}*  of  the  creditors  of  the 
company  are  in  danger  of  losing  by  it,  and  there  is  no  objection  to  its 
proceedings,  except  that  the}-  are  not  authorized  by  its  act  of  incor- 
poration and  are  alleged  lo  be  againstjjuDlic  policy,  for  that  reason." 
No  case  is  therefore  "made,  upon  which,  according  to  the  principles  of 
equity  jurisprudence  and  the  practice  of  this  court,  an  injunction  should 
be  issued  upon  an  information  in  chancery. 

In  Attorney  General  v.  Utica  Insurance  Co.  2  Johns.  Ch.  371, 
Chancellor  Kent,  in  a  very  able  and  elaborate  judgment,  after  a 
thorough  discussion  of  the  question  on  principle,  and  an  extensive 
examination  of  the  earlier  authorities,  held  that  such  an  information 
could  not  be  maintained  to  restrain  an  insurance  company  from  exer- 
cising banking  powers  in  violation  of  a  statute  of  New  York  ; .  but  that 
the  proper  remedy  was  at  law,  by  information  in  the  nature  of  a'  quo 
warranto  /_and  no  appeal  appears  to  have  been  taken  from  his  decree. 
Ah  information  in  the  nature  of  a  quo  warranto  was  thereupon  filed, 
and  sustained  by  the  supreme  court  of  New  York,  and  judgment 
rendered  thereon  that  the  corporation  be  ousted  from  the  franchise 
which  it  had  usurped.  People  v.  Utica  Insurance  Co.  15  Johns.  358. 
Similar  proceedings  may  be  had  at  law  in  this  Commonwealth  in  a 


ATTORNEY   GENERAL   V.   TUDOR   ICE   CO.  383 

proper  case.  Goddardv.  Smithett,  3  Gray,  116,  122,  123.  Attorney 
General  v.  Salem,  103  Mass.  138.  Boston  &  Providence  Railroad 
Co.  v.  Midland  Railroad  Co.,  1  Gray,  340.  Gen.  Sts.  c.  145, 
§§  16-24. 

One  early  English  case  of  high  authority,  not  cited  by  Chancellor 
Kent,  nor  at  the  argument  of  the  present  case,  is  so  much  in  point  as 
to  be  worth  quoting  in  full.  Upon  a  bill  in  equity,  filed  by  the  attorney 
general,  at  the  relation  of  several  freemen  of  the  Weavers'  Company, 
against  the  officers  of  that  company,  setting  forth  "  that  the  defendants 
had  been  guilty  of  many  breaches  and  violations  of  their  charters,  and 
had  oppressed  the  freemen,  &c.,  and  mentioned  some  particulars ;  and 
for  a  discovery  of  the  rest,  and  that  they  might  be  decreed  for  the 
future  to  observe  the  charters,  and  to  have  an  account  of  the  revenue 
of  the  corporation  which  the  defendants  had  misspent,  &c.,  was  the 
end  of  the  bill.  To  which  the  defendants  demurred,  because,  as  to 
part  of  the  bill,  it  was  to  subject  them  to  prosecutions  at  law,  and  to  a 
quo  warranto  ;  and  as  to  the  other  parts,  the  plaintiffs  had  remedy  by 
mandamus,  information,  or  otherwise,  and  not  here.  And  of  the  same 
opinion,"  the  report  proceeds,  was  Lord  Cowper,  "who  said  it  would 
usurp  too  much  on  the  king's  bench ;  and  that  he  never  heard  of  any 
precedent  for  such  a  case  as  this ;  and  so  allowed  the  demurrer." 
Attorney  General  v.  Reynolds,  1  Eq.  Cas.  Ab.  (3d  ed.)  131. 

The  modern  English  cases,  cited  in  support  of  this  information, 
were  of  suits  against  public  bodies  or  officers  exceeding  the  powers 
conferred  upon  them  by  law,  or  against  corporations  vested  with  the 
power  of  eminent  domain  and  doing  acts  which  were  deemed  incon- 
sistent with  rights  of  the  public. 

Some  of  them  were  cases  of  misapplication  of  funds  raised  by  taxation 
and  held  by  municipal  corporations  or  officers  upon  specific  pubjic 
trusts.  Such  were  Attorney  General  v.  Norwich,  16  Sim.  225,  Attor- 
ney General  v.  Guardians  of  Poor  of  Southampton,  17  Sim.  6,  and 
Attorney  General  v.  Andrews,  2  Macn.  &  Gord.  225. 

The  hypothetical  case,  in  which  Lord  Westbiny,  in  Stockport  District 
Waterworks  v.  Manchester,  9  Jur.  (N.  S.)  266,  said  that  he  should 
"  probably  not  hesitate"  to  act  upon  the  information  of  the  attorney 
general,  was  of  a  suit  to  restrain  the  making  of  a  contract  between  an 
aqueduct  corporation  and  a  city  to  carry  water  bej'ond  the  limits  which 
the  city  was  authorized  b}T  law  to  supply. 

The  passages  cited  from  Liverpool  v.  Chorley  Water  Works  Co.  2 
De  Gex,  Macn.  &  Gord.  852,  860,  and  Ware  v.  Regent's  Canal  Co.  3 
De  Gex  &  Jones,  212,  228,  were  but  dicta  that  an  unauthorized 
diversion  of  water  or  flowing  of  land  by  an  aqueduct  or  canal  corpora- 
tion, without  proof  of  actual  or  imminent  injury  to  propert}',  gave  no 
right  of  suit  to  an  individual,  and  could  only  be  checked  on  an 
application  to  the  court  b}'  the  attorney  general. 

The  case  of  Attorney  General  v.  Great  Northern  Raihcay  Co. 
4  De  Gex  &  Smale,  75,  was  a  clear  case  of  nuisance,  the  unlawful 


384  ATTOKNEY   GENERAL   V.   TUDOR   ICE   CO. 

obstruction  of  a  public  highway  by  a  railroad.  .That  of  Attorney 
General  v.  Oxford,  Worcester  &  Wolverhampton  Railway  Co.  2 
Weekly  Rep.  330,  was  the  case  of  the  opening  of  a  railway  line  in 
violation  of  an  order  which  an  authorized  public  board  had  made  upon 
the  ground  that  it  would  be  unsafe  to  the  public. 

The  single  case,  in  which  an  information  has  been  sustained  in  an 
English  court  of  chancery  against  a  corporation  for  carrying  on  a 
business  be3'ond  its  corporate  powers,  is  Attorney  General  v.  Great 
Northern  Railway  Co.  1  Drewry  &  Smale,  154,  in  which  Vice  Chan- 
cellor Kindersley  in  1860  restrained  a  railway  compan}^  from  trading 
in  coal  in  large  quantities,  upon  the  ground  that  there  was  danger  that, 
if  allowed  to  go  on,  it  might  get  into  its  hands  the  coal  trade  of  the 
whole  district  from  or  through  which  its  railway  ran,  and  thus  acquire 
a  monopoly Jjrjurious  to  the  public.  That  case  is  evidently  the  founda- 
tion of  the  dictum  of  Vice-chancellor  Wood,  two  years  later,  in  Hare 
v.  London  <&  Northwestern  Railway  Co.  2  Johns.  &  Hem.  80,  111. 

In  Attorney  General  v.  Mid  Kent  Railway  Co.  Law  Rep.  3  Ch. 
100,  a  mandatory  injunction  was  granted  upon  the  information  of  the 
attorney  general  to  compel  a  railway  company  to  construct  a  bridge 
over  a  public  road,  and  with  as  gradual  a  slope  as  was  required  by  a 
special  clause  in  its  charter  ;  and  the  objection  that  the  attorne}'  general 
might  have  had  an  equal  and  complete  remedy  at  law  was  stated  by  each 
of  the  lords  justices  as  if  it  required  no  answer  and  afforded  no  ground 
for  refusing  to  entertain  jurisdiction  in  equit}'.  It  is  often  said,  in  the 
English  books,  that  the  king  or  his  attorney  general,  suing  in  behalf  of 
the  public,  has  the  election  to  sue  in  either  of  his  courts,  and  may 
therefore  enforce  a  legal  right  in  the  court  of  chancery.  1  Dan.  Ch. 
Pract.  (3d  Am.  ed.)  6,  7.  Attorney  General  v.  Galway,  1  Molloy,  95, 
103.  However  that  may  b&,J3y— ftm*  stn.tiif.ps  tliA-gm^ygj^p^viity  jnris-_ 
diction  oftliis^ourt  is  limited  to  cases  where  there  js^  no  plain,  adequate  _ 
and  complete  remedy  at  law,  as  well  in  suits  by  the  Commonwealth 
as  in  those  brought  by  private _  persons.  Gen.  Sts.  c.  113,  §  2.  Com- 
monwealth v.  Smith,  10  Allen,  448.  Clouston  v.  Shearer,  99  Mass. 
209,  211,  and  other  cases  there  cited.  The  38th  of  the  former  rules  in 
chancery  of  this  court  (14  Gray,  360)  b}T  which  the  court  adopted,  as 
the  outlines  of  its  practice,  the  practice  of  the  high  court  of  chancery 
in  England,  so  far  as  the  same  was  not  repugnant  to  the  Constitution 
and  laws  of  the  Commonwealth,  nor  to  those  or  such  other  rules  as  the 
court  might  from  time  to  time  make,  cannot  enlarge  the  jurisdiction  of 
this  court  as  defined  by  statute,  and  has  been  repealed  by  the  new  rules 
recently  established.  Rules  of  1870,  post,  555. 

The  only  cases  in  which  informations  in  equity  in  the  name_of_lhe 
attorney  general  nave  Deen  sustained  by  this  court  are  of  two  classes. 
The  one  is  of  public  nuisances,  which  affect  or  endanger  the  public 
safety  or  convenience,  and  require  immediate  judicial  interposition, 
like  obstructions  of  highways  or  navigable  waters.  District  Attorney 
v.  Lynn  &  Boston  Railroad  Co.  16  Gray,  242.  Attorney  General  v. 


ATTORNEY   GENERAL   V.   TUDOR   ICE   CO. 


385 


Cambridge,  Ib.  247.  Attorney  General  v.  Boston  Wharf  Co.  12 
Gray,  553.  Rowe  v.  Granite  Bridge  Co.  21  Pick.  344,  347.  The_ 
other  is  of  trusts  for  charitabje^urposes^jivhere  the  beneficiaries  are. 
so  numerous  and  indefinite  that  the  breach  of  trust  cannot  be  effectively 
redressed  except  by  suit  in  behalf  of  the  public."  County  Attorney  v. 
May,  5  Gush.  336.  Jackson  v.  Phittips^~Ii  Allen,  539,  579.  Attor- 
ney General  v.  Garrison,  101  Mass.  223.  Gen.  Sts.  c.  14,  §  20.  If 
there  are  any  other  cases  to  which  this  form  of  remedy  is  appropriate, 
that  of  a  private  trading  corporation,  whose  proceedings  are  not  shown 
to  have  injured  or  endangered  any  jmblic  orjgrivate^  rights,  and  are 
objected  to  solely  upon  the  ground  that  theywenoT  authorized  by  its 
act  of  incorporation  and  are  therefore  against  public  policy,  is  not  one 
of  them.  Information  dismissed. 


386          YAKBOROUGH  V.  BANK  OF  ENGLAND. 


CHAPTER  XII. 

• 

LIABILITY  OF  CORPORATION  FOR  TORTS. 


YARBOROUGH  v.   BANK  OF  ENGLAND. 

1812.     16  East,  6. 

THE  plaintiffs  declared  in  trover  against  the  corporation  of  the  Gov- 
ernor and  Company  of  the  Bank  of  England,  for  three  promissory  notes 
of  the  Bank  of  England,  payable  on  demand,  each  for  WQl.  describing 
them  by  their  dates  and  numbers,  to  which  the  defendants  pleaded  the 
general  issue :  and  after  a  verdict  for  the  plaintiffs  before  Lord  Ellen- 
borough  Ch.  J.  at  Guildhall,  it  was  moved  in  the  last  term  to  arrest 
the  judgment,  on  the  ground  tuat  the  action  of  trover,  which  was 
founded  in  tort,  did  not  lie  against  a  corporation :  but  it  was  at  the 
same  time  explained  by  Bosanquet,  who  made  the  motion,  that  the 
objection  did  not  originate  with  the  Bank,  who  merel}7  lent  their  names 
upon  this  occasion  to  protect  the  true  owner  of  the  notes,  Mr.  /Sidney 
of  FurnivaVs-Inn,  who  had  been  robbed  of  them  on  the  22d  of  June 
last,  and  had  immediate!}'  given  notice  to  the  Bank  to  stop  payment  of 
them,  under  his  indemnity.  That  the  plaintiffs,  who  were  bankers  at 
Doncaster,  had  several  months  afterwards  received  them  in  the  course 
of  their  business  in  exchange  for  their  own  notes,  from  a  person  who 
gave  in  the  name  of  Capt.  Johnson,  but  whom  they  did  not  know  ;  and 
consequently  all  means  of  tracing  the  property  were  lost.  And  the 
real  contest  in  this  action  was  between  Mr.  Sidney  and  the  plaintiffs ; 
Mr.  Sidney  imputing  negligence  to  them  in  the  transaction. 

The  case  was  argued  on  Saturday  last  by  Taddy,  against  the  rule, 
and  by  Garrow  and  Bosanquet,  in  support  of  it ;  when  the  Court  said 
that  they  would  look  into  the  authorities  before  they  delivered  judg- 
ment ;  which  was  now  pronounced  by 

Lord  ELLENBOROUGH,  Ch.  J.  In  this  case,  which  was  argued  on 
Saturday,  the  only  question  was  whether  an  action  of  trover  is  main- 
tainable against  a  bod\*  corporate  ;  in  other  words,  whether  a  corpora- 
tion can  be  guilty  of  a  trespass  or  a  tort.  As  a  corporation  they  can 
do  no  ac*^  no*  P^P"  a-ffl*  their  corporate  seal  to  a  deed,  but  through 
•  the  instrumentality  and  agency  of  others :  they  cannot,  as  a  corpora- 


YARBOROUGII  V.  BANK  OF  ENGLAND.  387 

tion,  be  subject  to  a  capias  or  exigent,  (the  process  in  trespass,)  be- 
cause the  remedies  which  attach  npon  Kving^ersons  cannot  be  applied_ 
to  bodies  merely  politic  and  of  an  impersonal  nature.  But  wherever 
the}*  can  competently  do  or  ord'erjinj'jict  jo_be  done  on  their  behalf, 
which  as  by  their  common  seal  they  may  do,  the}'  are  liable  to  the  con-  / 
sequences  of  such  act,  if  it  be  of  a  tortious  nature,  and  to  the  prejudice 
of  others.  A  corporation  having  the  return  of  writs,  or  to  which  any 
writ,  or  a  mandamus,  for  instance,  is  directed,  is  liable  eventually  to 
an  action  for  a  false  return.  The  case  of  Argent  v.  The  Dean  and 
Chapter  of  St.  PauFs,  in  this  court  about  the  year  1781,  was  an  action 
for  a  false  return  to  a  mandamus  respecting  an  election  to  a  verger's 
place  in  that  cathedral ;  and  no  objection  was  made  that  the  action 
would  not  lie.  Vidian's  Entries,  p.  1.  is  an  action  for  a  false  return 
against  the  mayor  and  commonalty  of  the  city  of  Canterbury,  for  a 
false  return  to  a  writ  of  mandamus  to  restore  an  alderman  to  his  prece- 
dency of  place,  &c.  It  states  the  mayor  and  corporation  as  attached 
to  answer,  and  the  return  as  falsely  and  maliciously  made.  The  in- 
stances of  actions  against  corporations  for  false  returns  to  writs  of 
mandamus,  which  are  so  often  directed  to  them,  must  be  numberless, 
though  I  have  not  found  many  of  them  in  the  books  of  entries.  Bro. 
Corporations,  pi.  48.  A  corporation  cannot  be  aiding  to  a  trespass,  I 
nor  give  a  warrant  to  do  a  trespass  without  writing  ;  and  cites  4  Hen.  \ 
VII.  9.  and  certainly  it  appears  by  that  case,  and  by  the  sequel  of  it  in 
4  Hen.  VII.  16.  that  a  corporation  cannot  give  a  command  to  enter  into 
land,  without  deed,  nor  do  a  thing  which  vests  or  devests  a  freehold, 
nor  accept  a  disseisin  made  to  their  use,  without  deed.  But  many  lit- 
tle things,  it  is  said,  require  no  command ;  by  which  must  be  meant  no 
special  commanding,  as  a  command  to  servants  to  chase  cattle  out  of 
their  lands,  or  to  make  hay :  being  things  which  it  is  incident  to  a  ser- 
vant to  do,  and  which  he  is  bound  to  do  without  command :  and  if  he 
do  it,  it  is  good,  and  the  command  is  not  material,  for  he  may  do 
it  without  command.  A  corporation  cannot  do  a  tort  but  by  their  ' 
writing  under  their  common  seal :  per  Fitzjames1  Justice  ;  Bro.  Cor- 
porations, pi.  34.  cites  14  Hen.  VIII.  2.  29.  which  imports  that  by 
their  writing  they  may.  A  corporation  may  be  defendants  in  an  action 
of  quare  impedit,  and  the  hindrance  is  an  act  of  tort.  Butler  v.  The 
Bishop  of  Hereford  and  the  University  of  Cambridge.  Barnes,  C.  P. 
350.  To  which  a  multitude  of  other  instances  may  be  added.  Rast. 
497.  ^tf.  378.  2  Mod.  En.  291.  Winch.  625.  700.  721.733.  2 
Lut.  1100.  3  Lev.  332.  The  stat.  9  H.  IV.  c.  5.  recites  the  practice, 
in  assizes  of  novel  "disseisin  and  other  pleas  of  land,  of  naming  the 
mayor  and  bailiffs  and  commonalty  of  a  franchise,  as  disseisors,  in 
order  to  oust  them  of  holding  plea  thereof;  and  directs  the  inquiry 
before  the  judges  of  assize,  whether  they  be  disseisors  or  tenants,  or  / 
be  named  by  fraud  ;  "  which  plainly  proves  that  they  may  be  considered  / 
as  disseisors  ;  and  there  are  instances  of  trespass  against  corporations,  f 
In  44  Ed.  III.  2.  pi.  5.  which  was  after  22  Ass.  pi.  67.  cited  in  the 


388  YAKBOROUGH  V.  BANK  OF  ENGLAND. 

argument,  trespass  was  brought  against  the  ma3*or  and  commonalt}*  of 
Hull  and  another  person ;  and  the  objection  made  was  not  that  tres- 
pass would  not  lie  against  the  corporation,  but  that  as  a  natural  person 
was  joined  with  them,  there  must  be  different  processes ;  a  distress 
against  the  former,  and  a  capias  against  the  latter.  But  the  objection 
does  not  appear  to  have  prevailed.  In  8  H.  VI.  1.  14.  trespass  was 
brought  against  the  mayor,  bailiff,  and  eommonalt}-,  and  one  of  the 
commonalty ;  and  the  objection  was  not  that  trespass  would  not  lie 
against  the  corporation,  but  that  it  could  not  be  supported  against 
them  and  an  individual  of  their  body  ;  and  Bro.  Corporations,  pi.  24. 
says,  the  better  opinion  was  that  the  writ  was  good ;  and  14  Hen. 
VIII.  2.  says  it  was  so  awarded,  and  that  in  that  case  all  the  justices 
agreed  to  it.  Brook  also  puts  the  case,  "  if  mayor  and  commonalty 
disseise  me,  and  I  release  to  20  or  200  of  the  commonalty ;  this  will 
not  serve  the  ma3*or  and  commonalty  ;  "  and  the  reason  is  because  the 
disseisin  is  in  their  corporate  character,  and  the  release  is  to  the  indi- 
viduals. And  the  case  is  put  "  that  if  mayor  and  commonalty  disseise 
one^of  Jjieir  own  body,  he  shall  have  assize  against  them ; "  which 
clearlyjjnjjorts  that  the  corporation,  as  such,  _mjght  be  disseisors . 
Also,  in  4  Hen.  VII.  13.  trespass  was  brought  against  the  mayor  and 
commonalty  of  York:  they  justified  under  a  right  in  the  inhabitants  to 
have  common :  but  this  was  adjudged  no  plea,  because  the  right  in 
natural  persons  gave  no  right  to  the  corporation,  and  the  trespass  was 
alleged  in  the  corporation.  They  then  pleaded  as  bailiffs  in  aydant : 
but  it  was  adjudged  that  they  could  not  be  bailiffs  aiding  to  a  trespass, 
"  nor  could  they  give  warrant  without  writing  to  commit  a  trespass  ; 
which  implies  that  by  proper  writing,  namelj',  by  deed  under  their  com- 
~T  mon  seal,  they  might.  In  the  present  case,  which  is  after  verdict,  it 
must  be  presumed  that  a  competent  conversion  was  proved  ;  and  if  it 
be  essential  to  such  conversion  that  there  should  have  been  an  author- 
it}1  from  the  company  under  seal  to  detain  the  notes  on  their  behalf, 
that  such  authority  was  proved.  The  fact,  by  reference  to  my  notes, 
is  that  it  was  admitted  that  the  bank  detained  the  notes  in  question, 
/  under  an  indemnit}' ;  and  as  no  objection  was  taken  to  the  terms  of  the 
admission,  a  competent  detention,  i.  e.  through  the  means  of  servants 
property  authorized  to  detain  on  their  behalf,  was  thereby  admitted  ; 
and  therefore  the  presumption  of  due  proof,  after  verdict,  is  in  effect 
warranted  b}^  the  facts  of  the  case,  if  it  had  been  material,  which  it  by 
no  means  is,  to  resort  to  them.  In  the  case  of  The  King  v.  John 
Biggs.  3  P.  Will.  419.  it  was  made  a  question  upon  a  special  verdict 
in  a  case  of  capital  felony,  for  erasing  an  indorsement  upon  a  bank 
note,  whether  a  person  intrusted  and  emploA'ed  by  the  governor  and 
company  of  the  bank  of  England  to  sign  notes  on  their  behalf,  was 
competently  authorized  for  that  purpose,  not  having  been,  as  the  spe- 
cial verdict  expressly  found,  so  entrusted  and  employed  under  their 
common  seal.  There  is  a  long  and  learned  argument  of  the  reporter, 
Mr.  Peere  Williams,  in  which  the  authorities,  as  to  what  acts  a  cor- 


MAUND  V.  MONMOUTHSHIRE  CANAL  CO.          389 

poration  may  do  by  their  servant  without  an  authority  under  their 
common  seal,  are  drawn  together.  The  majority  of  the  judges  wlm 
sustained  the  conviction  mus^have  been_of^ opinion  that  an  authority 
Under  their  common  seal  was  not  essentially  necessary  for  such  a  pur- 
pose ;  indeed  accord!  ngTo  the  report  in  1  /Sfcra.~~IB.  oTthe  same  case, 
the  d~oubt  of  the  judges  must  have  turned  upon  another  point,  namely, 
upon  the  import  of  the  word  endorsement,  (i.  e.  the  writing  alleged  to 
be  erased ;)  and  whether  it  could  be  satisfied  by  an  erasure  of  what 
was  written  on  the  face  of  the  note.  As  to  which  Sir  John  Strange  in 
his  report  says,  "  That  it  was  held  by  all  the  judges  that  the  defendant 
was  guilt}- ;  for  the  writing  on  the  face  of  the  note  was  of  the  same 
effect  as  an  endorsement,  and  being  introduced  by  the  company  instead 
of  writing  on  the  back,  and  always  accepted  and  taken  to  be  an  en- 
dorsement, was  within  the  words  of  the  indictment."  Theobjection_of_ 
the  want  of  authority  under  th?  ^omjTKni  seal,  is  not  even  noticed  in 
the  report  of  thjscaseby_Sir  John  Strange.  However,  iFthere  would 
have  been  anything  in  the  objection  in  this  case,  if  made  at  the  trial, 
there  is  nothing  in  it  after  verdict,  when  it  must  be  presumed,  as  I 
have  already  stated,  that  all  the  competent  proof  which  could  be  made 
in  support  of  the  action  was  made,  and  of  course  that  an  authority 
under  seal  for  the  detention  of  the  notes  was  proved,  if  such  proof 
were  at  all  necessary.  Rule  discharged. 


MAUND  v.  MONMOUTHSHIRE  CANAL  CO. 

1842.     4  Manning  Sf  Granger,  452. 

TRESPASS  for  breaking  and  entering  locks  on  a  canal,  and  seizing 
and  carrying  away  barges  and  coal. 

Pleas  :  not  guilt}'  (by  statute) l  and  payment  of  money  into  court. 

At  the  trial,  before  Cresswett  J.,  at  the  last  assizes  for  Monmouthshire, 
it  was  proved  that  the  trespasses  in  question  had  been  committed  by 
one  Cooke,  who  was  the  agent  of  the  company,  which  was  incorporated 
by  act  of  parliament ; *  and  that  the  barges  and  coal  had  been  seized 
for  tolls  claimed  to  be  due  to  them.  The  onlji_auestion  raisedjiKas, 
whether  trespass  would  lie  against  a  corporation_-aggregate_jor  an  act 
dojifi-J}5LiJieir_a£enj^jad^  A  verdict  was 

taken  for  the  plaintiff,  dam^g^s^ot7l^a7en5elng~feserved  to  move  to 
enter  a  verdict  for  the  defendants. 

Talfourd  Serjt.  in  last  term,  obtained  a  rule  nisi  accordingly,  or  to 
arrest  the  judgment.  He  cited  the  case  of  Button's  Hospital,2  Anon.,9 
Morgan  v.  The  Corporators  of  Carmarthen*  Thusfeild  and  Jones's 

1  36  G.  3.  c.  cii.  2  10  Co.  Rep.  32. 

8  12  Mod.  559.  *  3  Keb.  350. 


390  MAUND   V.   MONMOUTHSHIRE   CANAL   CO. 

ease,1  Com.  Dig.  tit.  Franchises  (F.  19.),  6  Vin.  Abr.  tit.  Corpora' 
tions  (B.  a.). 

Ludlow,  Serjt.  now  shewed  cause.    The  act  of  parliament  by  which 
the  company  is  incorporated  provides  that  they  may  sue  and  be  sued  : 
it  alsp_empowers  them  to  enter  on  lands.    If_tbey  enter  improperly, 
x  it  would~seem^~that  they  may  be  sued  for  the  trespass.    The  whole  doc- 
trineHiat  a  corporation  cannot  be  sued  in  trespass  rests  on  one  passage 
in  Bro.  Abr.  Corporations,  43 ; 2  where  the  reason  given  is,  that  neither 
capias  nor  exigent  can  go  against  them.     A  distringas,  however,  may 
be  issued  against  a  corporation.     It  has  been  decided  that  trover  will 
lie  against  a  corporation  ;    Yarborough  v.  The  Bank  of  England ; 8 
where  Lord  Ellenborough  C.  J.,  in  giving  the  judgment  of  the  court, 
reviews  all  the  authorities  upon  the  subject.     [  Tindal  C.  J.     That  case 
was  after  verdict.     It  was  a  motion  in  arrest  of  judgment :  no  leave 
/  appears  to  have  been  reserved.]     But  the  broad  doctrine  is  laid  down 
I  that  trover  would  lie  ;  and  there  is  no  difference  in  principle  between  that 
I  action  and  trespass.     The  payment  into  court  in  this  case  admits  that 
'  the  action  is  rightly  brought.     An  indictment  will  lie  against  a  corpora- 
tion, although  all  the  ordinary  consequences  cannot  follow.4    Various 

1  Skin.  27. 

2  "  Nota,  per  Thorpe,  that  trespass  lies  not   against  commonalties,  to  wit,  by  the 
name  of  corporation,  but  against  the  persons  who  did  it,  by  their  proper  names ;  for 
neither  capias  nor  exigent  lies  against  a  commonalty ;  nor  shall  a  commonalty  implead 
or  be  impleaded  but  with  the  mayor  or  bailiffs,  if  they  have  mayor  or  bailiffs ;  and 
there  by  him  (i.  e.  according  to  Thorpe)  there  may  be  a  corporation  by  name  of  a  com- 
monalty, without  mayor,  bailiff,  or  other  head."     Citing  22  Ass.  p.  67.     (22  Ass.  fo. 
100.  pi."  67.) 

In  Bro.  Trespass,  pi.  239.,  Lord  Brooke  abridges  the  same  case  thus :  "  Nota,  per 
Thorpe,  that  trespass  lies  not  against  a  commonalty,  but  shall  be  brought  against 
the  persons  by  their  own  names ;  for  neither  capias  nor  exigent  lies  against  a 
commonalty." 

In  the  Book  of  Assizes,  the  case  is  thus  reported  at  large  :  — 

"Nota,  by  Thorpe."  (Chief  Justice  of  the  King's  Bench),  "that  a  writ  of  trespass 
lies  not  against  a  commonalty ;  but  it  is  necessary  in  such  writs  that  the  persons  be 
named  in  certain ;  for  he  said  that  a  man  shall  never  have  a  capias  or  exigent  against  a 
commonalty  ;  et  hoc  patet  in  a  bill  of  trespass  brought  by  J.  A.  W.  against  certain  per- 
sons and  the  commonalty  of  the  town  of  J.  Also  he  said  that  the  commonalty  of  any 
town  shall  never  be  named  in  any  action,  defendant  or  plaintiff,  unless  the  mayor  or 
bailiff  be  named,  if  there  be  a  mayor  or  bailiff,  &c.,  and  if  there  be  no  mayor  or  bailiff, 
then  the  commonalty  may  be  solely  named,  &c." 

In  the  case  of  The  Mayor,  Sheriffs,  and  Commonalty  of  Norwich,  M.  21  E.  4,  fo.  12, 
pi.  4.,  Catesby  J.  (fo.  14.)  says,  "  It  cannot  be  denied  that  the  mayor,  sheriffs,  and  com- 
monalty are  one  entire  body,  which  cannot  be  severed,  and  which  cannot  do  any  cor- 
"^  poral  wrong."  But  a  writ  of  trespass  for  disturbance  in  taking  the  profits  of  liberties 
against  a  corporation  (sued  jointly  with  an  individual)  was  held  to  be  maintainable; 
Archbishop  of  York  v.  Mayor  and  Commonalty  of  Hull  and  Another,  H.  45  E.  3,  fo.  2, 
pi.  5.  So,  for  disturbance  in  holding  a  court-leet;  Prior  of  Merton  v.  Mayor  of  New 
Windsor  and  Others,  Burgesses  of  the  said  Town,  T.  18  H.  6,  fo.  11,  pi.  1. 

And  see  The  Mayor  and  Commonalty  of  Winchester's  case,  31  Ass.  fo.  188,  pi.  19.; 
M.  8  //.  6,  fo.  1,  pi.  2. ;  M.  9  H.  6,  fo.  36,  pi.  9. ;  Great  Yarmouth  case,  M.  20  H.  6,  fo. 
9,  pi.  19. ;  Kedwelly's  case,  M.  15  E.  4,  fo.  2,  pi.  2. ;  T.  4  H.  7,  fo.  13,  pi.  11. 

8  16  East,  6.  *  See  1  Kyd,  Corp.  225. 


CHESTNUT  HILL,  ETC.  TURNPIKE  CO.  V.  RUTTER.      391 

instances  are  collected  in  Kyd  on  Corporations?  where  trespass  has 
been  brought  against  a  corporation.2  Other  authorities  are  mentioned 
in  1  Wms.  Saund.  340.  n.  The  principle  that  a  corporation  is  liable  in 
tort  for  the  tortious  act  of  its  agent,  done  in  its  ordinary  service,  is 
further  carried  out  in  Smith  v.  The  Birmingham  Gas  Company.* 
[  Tindal  C.  J.  The  process  is  the  same  both  in  case  and  in  trespass  — 
namely,  by  attachment,  distress,  capias  and  outlawry.  If  case  will  lie, 
it  is  difficult  to  see  why  trespass  should  not  lie  also.] 

Talfourd  Serjt.  was  then  called  upon  to  support  the  rule,  and  ad- 
mitted that  he  had  nothing  to  rely  upon  but  the  old  authorities :  and 
that  in  Regina  v.  The  Birmingham,  and  Gloucester  Railway  Com- 
pany *  the  court  of  Queen's  Bench  had,  in  this  term,  refused  to  quash 
an  indictment  against  a  corporation.  The  doctrine  in  Bro.  Abr.,  how- 
ever, is  imported  into  Com.  Dig.  tit.  Franchises  (F.  19.).5 

TINDAL  C.  J.  The  process  in  case  and  trespass  being  the  same ;  it 
is  impossible  to  see  any  distinction  between  the  two  actions. 

Per  curiam.  Rule  discharged. 


CHESTNUT  HILL,  &c.  TURNPIKE  CO.  v.  RUTTER. 

181 8.     4  Sergeant  fr  Rawle  (Pa.),  6. 

IN  ERROR. 

This  was  an  action  of  trespass  on  the  case  [brought  by  Rutter 
against  the  Turnpike  Co.],  in  the  Common  Pleas  of  Montgomery 
county,  for  stopping  a  water  course. 

1  Vol.  i.  pp.  223-225. 

2  The  author  nevertheless  draws  this  conclusion  :  —  "  Notwithstanding  these  ex- 
amples, however,  it  may  well  be  doubted  whether,  at  this  day,  such  an  action  could  be 
maintained  against  a  corporation  aggregate ;  the  action  supposes  a  personal  act,  of 
which  the  corporation  is  incapable  in  its  collective  capacity  :  the  act  therefore,  which 
is  the  foundation  of  the  action,  must  be  done  by  some  individual  in  order  to  assert 
the  right  of  the  corporation,  and  the  action  being  brought  against  that  individual,  will 
answer  the  purpose  of  bringing  the  right  to  a  judicial  determination. 

"  It  is  accordingly  decided  that  a  replevin  cannot  be  maintained  against  a  corpora- 
tion aggregate,  because  it  is  founded  on  a  distress,  which  the  corporation  cannot  take 
but  by  its  bailiff."  Citing  Brownl.  175.,  Bac.  Abr.  tit.  Corporations,  (E.  2.) 

8  1  A.  $•  E.  526. 

*  Since  reported,  2  Q.  B.  Rep.  47.,  1  G.  fr  D.  457.,  2  G^fr  D.  236. 

6  Where  it  is  also  said  that  "  process  of  outlawry  does  not  lie  against  a  corporation 
aggregate  ;  45  E.  3.  2,  3.  (The  reference  is  to  The  Archbishop  of  York  v.  Mayor  and 
Commonalty  of  Hull  and  Another,  H.  45  E.  3,  fo.  2,  pi.  5.)  ante,  454.  n.,  nor  a  subpoena; 
for  it  has  no  conscience,  D.  2  Bui.  233."  (The  reference  is  to  The  Company  of  Ship- 
wrights of  Redderiffe's  case.) 

It  is  observable,  that  the  dictum  of  Thorpe  C.  J.  in  the  Book  of  Assizes,  does  not, 
in  terms,  apply  to  all  corporations  aggregate,  as  such,  but  to  municipal  corporations 
only. 


-?C 

. 


392  CHESTNUT   HILL,   ETC.   TUKNPIKE   CO.   V.   EUTTEE. 

The  declaration  stated,  that  the  defendants  below,  the  plaintiffs  in 

error,  were  incorporated  by  an  act  of  assembly,  passed  on  the  5th  day 

of  March,  1804,  entitled,  "  an  act  to  enable  the  Governor  of  this  Com- 

monwealth, to  incorporate  a  company  to  make  an  artificial  road,  from 

the  top  of  Chestnut  Hill,  through  Flourtown,  to  the  Spring  House 

tavern,  in  Montgomery  county  ;  "  that  the  plaintiff  was  seised  of  a 

messuage,  tanyard,  and  tract  of  land,  through  which  a  rivulet  from 

time  immemorial,  had  flowed,  &c.  ;  and  that  the  defendants  contriving, 

and  wrongfully,  and  injuriously  intending  to  injure  the  said  plaintiff, 

and  to  deprive  him  of  the  benefit  of  working  and  tanning  leather,  in 

»   the  said  tanyard,  and  of  the  profit  that  might  accrue  therefrom,  did 

i  wrongfully  and  unjustly  erect  and  set  up,  certain  jetties  or  piers,  on 

I  each  side  of  the  said  rivulet,  by  reason  whereof,  the  said  rivulet  was 

'   thrown  back,  and  overflowed  the  said  tanyard,  and  destroyed  a  great 

quantitjr  of  hides,  &c. 

By  the  9th  section  of  the  act  of  incorporation,1  the  company  had 
power  "to  erect  permanent  bridges  over  all  the  waters  crossing  the 
said  road.'5 

The  jury  found  a  verdict  in  favour  of  the  plaintiff,  for  305 
dollars. 

The  errors  now  assigned  were,  1.  That  the  Court  below  permitted 
an  action  to  be  maintained  against  a  body  corporate  for  a  tort. 

2.  That  the  declaration,  if  such  an  action  could  be  maintained,  set 
forth  no  cause  of  action. 

E.  Ingersoll  and  Ingersoll,  for  plaintiffs  in  error. 

[After  discussing  the  history  of  actions  :] 

It  was  never,  however,  pretended,  that  an  action  of  trespass  m  et 
armis,  would  lie  against  a  corporation,  which,  from  its  nature,  is  in- 
capable of  committing  a  tort  ;  nor  can  the  same  thing  in  effect  be  done, 
by  changing  the  form  of  action,  and  calling  it  an  action  on  the  case. 
Corporations  can  no  more  be  guilty  of  torts  than  executors  ;  the 
analogy  between  them,  in  this  respect,  is  strong,  and  it  has  been 
decided,  that  trover  does  not  lie  against  an  executor  for  a  conver- 
sion by  his  testator.  Hambly  v.  Trott?  Indeed,  it  was  oncejkmbted, 
whether  assumpsit  JgQuld_Jle_  against  a  corpdrate^body,  because  It 
could  make  no  promise  without  affixing  its^  seal,  and  the  Supreme 
Court  of  this  State,  went  so  far  on  one  occasion  as  to  decide,  that 


.   »  it  would  not.     Brec&SilTv.  Turnpike  Company.8     The  remedy  for  a 
V'torTls  not  against  the  corporation,  but  against  the  individual  who 
ommits  it,  who  may  have  his  action  over  against  those  who  employed 
him.     The  relation  of  master  and  servant,  as  it  exists  between  indi- 
viduals, does  not  hold  between  corporations  and  those  who  act  under 
their  orders.    Kyd  on  Corp.  223,  260,  450.     If_the_seryant  of  a  corpo- 
ration  coinjmt_aji_^8£ajil^jmjl_battery,  it  wil^not  be  pretended,  that 
the  corporation  is  responsible.     ITit  be  notTresponsible  for  an  assault 

1  Pamph.  L.  215.  2  Cowp.  372.  «  3  Dall.  496. 


CHESTNUT  HILL,  ETC.  TURNPIKE  CO.  V.  BUTTER.      393 

and  battery  committed  by  its  servant,  the  relation  of  master  and 
servant  does  not  exist;  because  nothing  is  more  clear  than  that  a 
master  is  responsible  for  the  torts  of  his  servant,  committed  in  the 
course  of  his  master's  business.  How  can  a  distinction  be  drawn 
between  an  assault  and  batter)',  and  injuries  of  the  nature  of  that  com- 
plained of  in  this  suit?  It  is  impossible  to  say  where  the  line  shouM 
be  placed. 

Corporations  are  the  creatures  of  the  law,  of  a  highly  refined  and 
intangible  nature,  whose  properties  and  attributes,  lawj'ers  alone  can 
understand.  Deriving  their  existence  from  the  law,  they  must  be 
governed  by  the  terms  of  the  law  which  creates  them.  They  must 
proceed  and  be  pursued  in  the  path  prescribed  by  the  law.  If_lhe 
corporators  do  an  act,  beyond  their  corporate  powers,  the}',  as  in- 
dividuals,j«id_not  the  corporation  ofjvhich_they  are  jmembers,  must 
answer  It.  Ifthe  corporation  itself  enter  into  a  contract  not  authorised 
by  its  charter,  no  action  founded  on  the  contract  can  be  sustained,  - 
t1iougQ"tEe~TndivIdual  members  may  be  sueoL  Suppose  an  insurance 
company  should  undertake  to  make  a  turnpike  road,  or  to  build  a 
church,  could  those  who  were  emploj'ed  by  them,  recover  against  the 
corporation  as  such?  Ever)'  principle  of  the  law  of  corporations  for- 
bids it.  Now,  a  corporation  nev^ji  was  and  never  can  be^authorised 
by  law  to~-£pmmita tort  L_they_can  invest  no  one  with— pager  for  that- 
pjrrpose.  Ir^thereforeTan  agent  constituted  for  a  legal  purpose,  inflict 
an  injury,  the  corporation  is  no  more  answerable,  than  it  would  be  for 
an  act  of  that  agent,  done  without  any  authority  whatever  derived,; 
from  it,  because  being  unauthorised  to  commit  a  wrong,  it  is  out  of  the  , 
scope  of  its  corporate  powers.  The  act  of  the  law,  like  the  act  of 
God,  can  work  a  wrong  to  no  one,  and  if  a  man  sustain  damage  b}'  it, 
it  is  damnum  absque  injuria.  The  plaintiff  in  this  case,  therefore,  must 
look  to  the  individual  from  whose  acts  he  sustained  an  injury,  who 
never  was,  and  never  could  be  authorised  to  commit  a  tort.  The 
principle  that  a  body  corporate  can  only  act  in  strict  pursuance  of  the  .. 
objects  of  its  incorporation,  is  stated  and  exemplified  in  the  conclusion 
of  the  Lord  Chancellor's  opinion,  in  the  case  of  Child  v.  Hud- 
son's Bay  Company.1  It  is  also  established  by  the  cases  of  Beatty  v. 
Marine  Insurance  Company*  and  Head  v.  Providence  Insurance 

Company*  Steele  v.  President  &c.  of  Lock  Navigation,*  M1  Clena- 
chan  v.  Curwen.* 

Between  nonfeasance  and  malfeasance,  a  marked  distinction  exists. 
It  is  not  denied,  that  for  nonfeasance,  actions  of  trespass  on  the  case 
have  been  sustained,  as  in  the  case  of  the  Mayor  of  Lynn  (in  error)  v. 

Turner,*  where  the  action  was  against  the  corporation  of  Lynn  Regis, 
for  neglect  of  duty,  in  not  keeping  a  creek  in  repair ;  in  the  case  of 

Townsend  v.   Susquehannah  Company?  for   neglecting   to   repair  a 

1  2  P.  Wms.  209.        2  2  Johns.  114.         8  2  Cranch,  166. 
*  2  Johns.  283.          6  Q  Binn.  509.          «  Cowp.  86. 
7  6  Johns.  90. 


394      CHESTNUT  HILL,  ETC.  TURNPIKE  CO.  V.  RUTTEE. 

bridge,  and  in  several  similar  cases.  Gray  v.  Portland  Bank,1  Stephens 
v.  Middleton  Canal?  In  Riddle  v.  Proprietors  of  locks  and  canals 
on  the  Merrimac*  PARSONS  C.  J.  lays  down  the  law  more  broadly 
than  by  his  authorities  he  is  warranted  in  doing,  yet  he  does  not  go  so 
far  as  to  assert  the  general  proposition,  that  trespass  will  lie  against  a 
corporation.  He  merely  says,  that  in  certain  cases ,_tresp_ass  may  be 
maintained;  and  it  is  to  ba  observed,  that  tlie^action  injwhich  the 
opinion  was  delivered,  was  for  a  nonfeasance ;  a  neglect  of  a  corpor- 
ate duty  in  horKeeping  the  canal  in  order. 

On  recurring  to  ancient  authorities,  it  will  appear,  that  trespass 
against  a  corporation  for  a  tort,  has  never  been  sustained.  THORPE  J. 
in  the  Book  of  Assizes ,  22  Edw.  3.  p.  100.  expressly  says,  that  tres- 
pass never  lies  against  a  corporation.  A  corporation  and  an  indi- 
vidual cannot  be  joined  in  trespass  as  defendants.  8  H.  6.  1.  pi.  2.  A 
corporation  cannot  commit  a  disseisin  except  for  its  own  use.  Mich.  8 
H.  6.  pi.  34.  p.  14.  Mich.  9.  H.  6.  pi.  9.  p.  36.  Hil.  22.  H.  6.  pi.  36. 
p.  46.  Trespass  does  not  lie  against  a  corporation  in  its  corporate 
name.  Vin.  Corp.  pi.  15.  p.  300.  Nor  will  an  attachment  lie.  Id.  B. 
A.  pi.  3.  p.  311.  Nor  replevin.  Id.  X.  pi.  17.  p.  308.  In  trespass 
against  an  abbot  he  shall  be  named  by  his  name  of  baptism.  Id.  Q. 
pi.  9.  p.  300.  An  action  for  a  false  return  to  a  mandamus,  must  be 
against  the  individual  members  of  the  corporation.  Id.  Q.  pi.  50.  p. 
303.  A  corporation  cannot  beat  or  be  beaten.  Id.  Z.  pi.  'Z.p.  309. 
If  a  corporation  disseise,  it  is  in  their  natural  and  not  in  their  corporate 
capacity.  Bac.  Ab.  Corp.  E.  pi.  5.  Trespass  does  not  lie  against  a 
corporation.  Com.  Dig.  Plead.  2.  B.  p.  196. 

2.  If  the  plaintiffs  in  error,  be  capable  of  inflicting  the  injury  im- 
puted to  them,  the  declaration  sets  forth  no  cause  of  action. 

[The  argument  on  this  point  is  omitted.] 

Binney,  for  the  defendant  in  error.  This  case  presents  three  ques- 
tions. 1.  Whether  a  corporation  can  commit  a  tort?  2.  Whether,  if  it 
can,  this  is  the  proper  form  of  action  ?  3.  Whether  the  cause  of  action 
is  well  set  forth  ? 

It  must  now  be  taken  as  proved,  that  the  company  gave  authority  to 
their  servants  to  do  the  act  complained  of.  The  rule  between  corpora- 
tions and  their  servants,  is  substantial^-  the  same,  as  between  indi- 
viduals and  their  servants.  If,  therefore,  they  give  their  servants 
power  to  do  an  act  in  pursuance  of  jthejrj^u^ar^e-chaxaclejij  jand  they 
do  it  improper!}',  the  uorpoTaTioTPa7erejp^njibJe_ln-ttifi.--same  manner 
as  any  other  master.  Wliy  should  a  difference  exist,  and  why  should  a 
corporate  body  be"  protected  in  the  commission  of  wrong?  If  a  cor- 
poration be  the  intangible  being  it  is  asserted  to  be,  a  greater  and 
more  mischievous  monster  cannot  be  imagined.  According  to  the 
doctrine  contended  for,  if  they  do  an  act  within  the  scope  of  their 
corporate  powers,  it  is  legal,  and  they  are  not  answerable  for  the  con- 

i  3  Mass.  R.  364.  2  12  Mass.  R.  466.  *  7  Mass.  R.  169. 


CHESTNUT  HILL,   ETC.   TUENPIKE   CO.   V.  EUTTER  395 

sequences.  If  the  act  be  not  within  the  range  of  their  legitimate  pow- 
ers, they  had  no  right  by  law  to  do  it ;  it  was  not  one  of  the  objects 
for  which  the}"  were  incorporated,  and,  therefore,  it  is  no  act  of  the 
corporation  at  all.  This  doctrine  leads  to  absolute  impunity  for_eyery 
species^of^wrong,  and~  can  neverjbe_sanctioned  by  anyjCourt  of  jus- 
tice. _  The  master  is  responsible  for  the  acts  of  the  servant,  not  be- 
cause he  has  given  him  an  authority  to  do  an  illegal  act,  but  from  the 
relation  subsisting  between  them.  If  the  servant  exceed  the  power  ^^- 
he  has  received,  the  master  must  answer  it.  So  if  the  company  give 
their  servant  authority  to  make  a  road,  in  pursuance  of  their  power  to 
do  so,  and  he  exceed  that  authority,  they  are  answerable,  because  he 
is  their  servant.  The  rule  which  makes  the  master  responsible  for  the 
acts  of  the  servant,  is  declared  by  SEDGWICK  J.  in  delivering  the  opin- 
ion of  the  Court,  in  the  case  of  Gray  v.  Portland  Bank?  to  apply 
with  peculiar  force  to  corporations  and  their  agents.  Theposition  that 
a  corporation^  can  do  no  wrong,  is  pernicious  in  its  congruences,  and 
~nnTgnndert~Ti-riaw.  If  rpul  a  note  in  bank,  ancfwish  to  get  it  out,  to 
put  it  in  suit,  and  the  bank  refuse  to  deliver  it,  surely  the  remedy  is 
an  action  of  trover.  If  I  refuse  an  exorbitant  toll,  in  consequence  of 
which,  my  horse  is  taken  from  me,  and  I  cannot  get  him  from  the  toll 
gatherer,  can  it  be  doubted,  that  I  may  have  an  action  of  trover  against 
the  company?  If  I  cannot  look  to  the  company,  there  is  no  remedy, 
because  the  toll  gatherer  may  be  worth  nothing,  or  may  have  gone  off;  *y£ 
nor  can  the  individual  members  be  resorted  to  unless  they  were  guilty 
of  malice.  If  a  quagmire  or  any  other  nuisance  exist,  the  supervisors 
where  there  is  no  turnpike  company  may  be  indicted ;  and  where  a 
company  are  invested  with  the  duties  of  supervisors,  they  may  be 
indicted.  The  corporators  as  individuals  cannot  be  indicted,  because 
it  is  not  within  the  line  of  their  dut}r  as  such. 

As  to  the  form  of  action,  it  is  difficult  to  point  out  any  other  remedy 
for  injuries  of  this  description  than  trespass  on  the  case,  and  if  there 
be  no  other  remedy,  this  is  the  right  one.  Assumpsit  certainly  would 
not  lie,  because  there  was  no  contract ;  nor  would  trespass  m  et  armis, 
because  the  damage  was  consequential.  The  old  authorities  which  have 
been  referred  to,  belong  to  a  period,  when  the  English  lawj'ers  were 
more  distinguished  for  subtlety  than  for  sound  sense ;  and  when  the 
nature  of  corporations  was  greatly  refined  upon.  It  appears,  how- 
ever, from  2  Inst.  697.  703,  that  a  corporation  was  then  considered 
as  substantially  an  inhabitant  or  occupier ;  and  subsequently  in  Rex 
v.  Gardener?  it  was  held,  that  a  corporation  seised  of  land  for  their 
own  profit  in  fee,  are,  within  the  statute  of  43  El.  c.  2,  inhabitants 
or  occupiers  of  such  lands,  and  liable  in  respect  thereof,  to  be  rated 
in  their  corporate  capacity  to  the  poor.  In  the  Supreme  Court  of  the 
United  States,  it  has  been  decided,  that  a  corporation  may  sue  in  the 
Circuit  Court  of  the  United  States  as  a  citizen.  Deceau  v.  Bank  of 

1  2  Mass.  R.  385.  3  Cowp.  79. 


396  CHESTNUT   HILL,   ETC.   TURNPIKE   CO.   V.   RUTTER. 

United  States.1  The  law  on  the  subject  of  corporations  has  of  late 
been  greatl}'  and  beneficially  altered.  It  was  formerly  held,  that  they 
could  do  nothing  except  under  their  seal,  and  for  that  reason  assump- 
sit  would  not  lie  against  them.  All  these  niceties^hogeYej^jire  _now 
repudiated,  and  they  ma3^enter  into jcpjatracts  _either _express  or  im- 
plied, without  seal.  When  a  corporation  is  acting  within  the  scope  of 
the  legitimate  purposes  of  its  institution,  all  parol  contracts  made  by 
its  authorised  agents,  are  express  promises  by  the  corporation,  and  all 
duties  imposed  on  them  by  law,  and  all  benefits  conferred  at  their 
request,  raise  implied  promises,  on  which  an  action  lies.  .Bank  of 
Columbia  v.  Patterson's  administrators? 

The  opinion  of  THORPE  J.  which  is  much  relied  on,  was  nothing 
more  than  a  dictum,  and  was  grounded  upon  the  necessity  which  then 
existed  of  a  capiatur  pro  fine  and  exigent ,  which  could  not  be  entered 
against  a  corporation.  These,  however,  are  now  exploded,  and  giving 
to  the  assertion  of  THORPE,  all  the  weight  to  which  it  can  possibly  be 
entitled,  the  authority  must  fail,  because  the  reason  of  it  no  longer 
/  exists.  The  distinction  taken  between  a  misfeasance  and  a  non- 
-feasance is  altogether  ideal ;  it  has  no  solid  foundation.  The  au- 
f  thorities  all  shew,  that  the  action  will  lie  in  either  case.  If  a  com- 
pany be  guilty  of  a  tort  by  neglecting  a  road  or  bridge,  how  can 
they  be  reached  but  in  this  form  of  action  ?  That  this  is  the  proper 
form,  is  proved  by  the  cases  adduced  on  the  opposite  side.  The  Mayor 
of  Lynn  v.  Turner,  was  clearly  an  action  of  trespass  on  the  case,  for 
a  tort;  so  was  Townsend  v.  Susquehanna  Turnpike  Company,  and 
Middle  v.  Proprietors  of  Locks,  &c.  on  Merrimack.  In  two  of  these 
cases  the  point  was  not  made,  and  in  the  third,  it  was  overruled.  As 
respects  the  form  of  action,  there  is  no  difference  between  nonfeasance 
and  misfeasance;  trespass  on  the  case,  is  the  general  form.  We  are, 
therefore,  brought  back  to  the  point  from  which  we  set  out,  whether  a 
corporation  can  commit  a  misfeasance,  which  is  clearly  proved,  not 
only  by  the  late,  but  b}"  the  ancient  authorities,  and  even  by  some  of 
those  which  have  been  cited  for  the  plantiffs  in  error.  Trespass  against 
the  Mayor  and  Commonalty  of  York ;  plea  that  all  the  inhabitants 
had  right  of  common,  in  the  place  where  the  trespass,  &c. ;  not  good, 
because  the  action  is  against  the  corporation,  and  the  plea  is  a  justifi- 
cation as  to  individuals.  Plea  altered,  and  the  corporation  said  to  be 
aiding  in  the  trespass ;  adjudged  that  they  cannot  be  aiding,  nor  can 
they  give  a  warrant  to  commit  a  trespass  without  writing.  4  H.  7.  pi. 
11.  p.  13.  A  corporation  cannot  authorise  a  wrong  to  be  committed, 
except  by  writing  under  their  common  seal.  Brook.  Corp.  pi.  34. 
p.  189.  These  authorities  prove  the  capacity  of  a  corporate  bod}'  to 
commit  a  wrong,  and  shew  the  position  said  to  have  been  laid  down  by 
THORPE,  to  be  erroneous.  Trespass  against  the  Mayor,  Bailiffs,  and 
Commonalty  of  Ipswich,  and  one  Jabez.  Objection  was  taken,  that  a 

1  5  Cranch,  65.  a  7  Cranch,  299. 


CHESTNUT   HILL,   ETC.   TURNPIKE   CO.   V.   RUTTER.  397 

corporation  and  an  individual  cannot  be  joined  in  one  writ,  but  no  ob- 1 
jection  taken,  to  trespass  having  been  brought  against  a  corporation.  ' 
8  H.  6.  pi.  2.  p.  1.     Id.  pi.  34.  p.  14.     An  assize  of  novel  disseisin 
was  maintained  against  the  ma}'or  and  commonalty  of  Winton.     Lib. 
Ass.  31.  Ass.  pi.  19.     In  trespass  against  a  corporation,  if  defendant 
plead  a  misnomer,  plaintiff  may  reply,   known  by  one  name  or  the 
other.     6  Vin.  pi.  42.  p.  303.     The  result  of  these  authorities  is,  that 
even  in  ancient  times,  trespass  could   be   sustained  against  a  body 
corporate. 

[Omitting  argument  as  to  sufficiency  of  declaration.] 
TILGHMAN  C.  J.  This  is  an  action  on  the  case,  brought  by 
James  Mutter  against  The  Chestnut  Sill  &  Spring  House  Turnpike 
Company,  for  an  injury  done  to  the  plaintiff's  land  and  tanyard,  in 
consequence  of  certain  piers  erected  by  the  defendants,  on  each  side  of 
a  stream  of  water,  by  which  the  stream  was  obstructed  and  thrown 
back,  and  overflowed  the  plaintiffs  land. 

The  defendants  below,  who  are  plaintiffs  in  error,  rely  on  two  objec- 
tions. 1.  That  a  corporation  is  not  suable  in  this  kind  of  action.  2. 
That  the  declaration  does  not  state  a  good  cause  of  action,  even  if  the 
defendants  were  liable  to  an  action  in  this  form. 

1.  Corporations  have  latety  been  so  multiplied  in  the  United  States, 
that  they  stand  a  very  prominent  part,  in  the  business  of  the  country. 
It  has,  therefore,  been  necessary  to  consider  with  great  attention,  their 
nature,  and  their  rights,  both  as  to  suing  and  being  sued.  And  as  it 
•would  be  extremely  inconvenient,  that  they  should  do  wrong  without 
"being  amenable  to  justice,  the  inclination  of  the  (Jourt  has  been  to  ho]9 
~ttlem  responsible.  L  There  was  a  time,  when  it  seems  to  have  been  sup- 
posed, that  the}7  could  make  no  contract,  but  by  writing  under  their 
common  seal.  The  reason  assigned  was,  that  being  incorporeal,  and 
consequently  incapable  of  speaking,  it  was  impossible  that  they  should 
enter  into  a  parol  contract.  But  upon  reflection,  this  reason  has  been 
thought  insufficient ;  for  if  pursued  to  its  full  extent,  it  would  prove, 
that  a  corporation  could  not  act  at  all.  It  has  no  hand  to  affix  a  seal, 
and  must  therefore  employ  an  agent  for  the  purpose.  But  this  agent 
must  receive  his  authority  previous  to  his  affixing  the  seal.  It  is  - 
necessar}",  therefore,  that  the  corporation  should  have  the  power  to  act 
without  seal,  so  far  as  respects  the  appointment  of  a  person  to  affix  the 
seal.  Now  if  it  can  appoint  an  agent  without  seal,  for  one  purpose, 
there  is  no  reason  why  it  may  not  for  another.  Accordingly,  in  the 
case  of  The  King  v.  Biggs,  3  P.  Wms.  419,  on  a  special  verdict  in  a 
case  of  capital  felony,  it  was  held,  that  the  Sank  of  England  might 
icithout  seal,  authorise  a  person  to  sign  notes  in  its  behalf.  And  it 
was  decided  by  the  Supreme  Court  of  the  United  States,  in  the  case  of 
The  Bank  of  Columbia  v.  Patterson's  administrators,  1  Cranch,  299, 
that  a  corporation  may,  without  seal,  enter  into  a  contract,  express,  or 
even  implied.  In  the  words  of  Judge  STORY,  by  whom  the  opinion  of 
the  Court  was  delivered,  "when  a  corporation  is  acting  within  the 


398  CHESTNUT   HILL,   ETC.   TURNPIKE   CO.   V.   RUTTER. 

scope  of  the  legitimate  purpose  of  its  institution,  all  parol  contracts 
made  by  its  authorised  agents,  are  express  promises  of  the  corporation, 
and  all  duties  imposed  on  them  by  law,  and  all  benefits  conferred,  at 
*  their  request,  raise  implied  promises,  for  which  an  action  lies."  By 
this  decision,  I  consider  the  law  as  settled.  It  does,  indeed,  seem  to 
have  been  the  opinion  of  this  Court,  in  the  case  of  Breckbill  v.  The 
Lancaster  Turnpike  Company,  3  Dall.  496,  that  an  action  of  as- 
sumpsit  would  not  lie  against  a  corporation.  But  the  law  had  not 
been  at  that  time  fully  considered,  and  I  may  say,  that  our  late  brother 
Y BATES,  who  was  on  the  bench  when  Breckbill  v.  The  Lancaster  Turn- 
pike Company  was  decided,  was  satisfied  as  to  the  propriety  of  acqui- 
escing in  the  authority  of  The  Bank  of  Columbia  v.  Patterson's 
administrators. 

But  it  is  objected  that  the  present  action  is  not  on  contract  but  on 
tort,  and  a  very  refined  argument  is  brought  forward,  to  prove  that  a 
corporation  cannot  be  guilty  of  a  tort.  A  corporation,  say  the  defend- 
ant's counsel,  is  a  mere  creature  of  law,  and  can  act  only  as  authorised 
by  its  charter.  But  the  charter  does  not  authorise  it  to  do  wrong,  and 
therefore  it  can  do  no  wrong.  The  argument  is  fallacious  in  its  prin- 
ciples, and  mischievous  in  its  consequences,  as  it  tends  to  introduce 
actual  wrongs  and  ideal  remedies ;  jor  a  turnpike  company  ma}'  do 

\  great  injury,by  means  of  labourcrgjvho^  havjL  no_pjop£r-LjLjQ_answef 
the  damages  recovered  against  them.  It  is  much  more  reasonable  to 
say,  that  when  a^Jorporatioifls  authorised  by  law  to  make  a  road,  if 
any  injury  is  done  in  the  course  of  making  that  road  by  the  persons 
employed  under  its  authority,  it  shall  be  responsible,  in  the  same 
manner  that  an  individual  is  responsible  for  the  actions  of  his  ser- 
vants, touching  his  business.  The  act  of  the  agent  is  the  act  of  the 
iprincipal.  There  is  no  solid  ground  for  a  distinction  between  contracts 
and  torts.  Indeed,  with  respect  to  torts,  the  opinion  of  the  Courts 
seems  to  have  been  more  uniform  than  with  respect  to  contracts. 
For  it  may  be  shewn,  that  from  the  earliest  times  to  the  present,  cor- 

.-?-  porations  have  been  held  liable  for  torts.  Many  cases  have  been  cited 
from  the  year  books.  Upon  examination,  they  do  not  all  answer  the 
citations,  but  enough  appears  to  shew  that  the  law  was  so  understood. 
In  4  Hen.  1.  p.  13.  pi.  11,  we  find  an  action  of  trespass  against  the 
Mayor  and  Commonalty  of  York.  Plea,  that  all  the  inhabitants  had  a 
right  of  common  in  the  land  where  the  trespass  is  supposed  to  have 
been  committed :  held,  not  good,  because  the  action  is  against  the 
corporation,  and  the  plea  is  a  justification  as  to  individuals.  In  a 
subsequent  part  of  this  case,  it  is  said  that  a  corporation  cannot  give 
a  warrant  to  commit  a  trespass  without  writing.  This,  if  it  be  law, 
proves  that  a  warrant  may  be  given  by  writing,  which  is  sufficient  for 
the  plaintiff's  purpose,  the  point  being,  whether  a  corporation  can  com- 
mit a  trespass.  In  8  Hen.  6.  p.  1.  pi.  11.  and  p.  14.  pi.  34,  trespass 
was  brought  against  the  Mayor  and  Bailiffs,  and  Commonalty  of  Ips- 
wich, and  one  J.  Jabez.  It  was  objected,  that  a  corporation  and  an 


CHESTNUT  HILL,   ETC.   TURNPIKE   CO.   V.   RUTTER.  399 

individual  cannot  be  joined  in  one  action  ;  but  it  was  not  objected  that 
trespass  does  not  lie  against  a  corporation ;  and  the  objection  is  said 
to  have  been  overruled  in  14  Hen.  8.  2.  In  the  book  of  assises  (31. 
Ass.  pi.  19.)  it  appears  that  an  assise  of  novel  disseisin  was  maintained 
against  the  Mayor  and  Commonalty  of  Winton.  Brook  lays  it  down, 
that  if  the  Mayor  and  Commonalty  disseise  one  who  releases  to  several 
individuals  of  the  corporation,  this  will  not  serve  the  Mayor  and  Com- 
monalty, because  the  disseisin  is  in  their  corporate  capacity.  In  the 
old  books  of  entries  are  numerous  precedents  of  writs  of  quaere  impedit 
against  corporations,  and  in  Vidian's  Ent.  1.  is  a  declaration  in  an 
action  on  the  case  (16  Car.  2.),  against  the  Mayor  and  Commonalty  of 
the  city  of  Canterbury,  for  a  false  return  to  a  mandamus.  To  come 
to  more  modern  times,  it  was  held  in  the  Mayor  of  Lynn,  &c.  (in 
error,)  v.  Turner,  (Cowp.  86,)  that  an  action  on  the  case  lies  against 
a  corporation  for  not  cleansing,  and  keeping  in  repair,  a  stream  of 
navigable  water,  which  it  was  bound  to  do  by  prescription,  in  conse- 
quence of  which  the  plaintiff  was  injured.  This  was  in  the  year  1774,  a 
little  before  our  revolution.  The  laws  of  the  Commonwealth  forbid 
my  tracing  this  point  through  the  English  Courts,  since  the  revolution, 
but  we  shall  find  abundant  authorit}'  in  the  Courts  of  our  own  country. 
In  Gray  v.  The  Portland  Bank,  6  Mass.  Hep.  364,  it  is  laid  down, 
that  the  bank  was  responsible  for  wrongs  done  bj'  itself  or  its  agents. 
In  Riddle  v.  The  Proprietors  of  the  Locks,  &c.  on  Merrimack  river. 
7  Mass.  Hep.  169,  an  action  was  maintained  against  the  company  for 
damage  suffered  by  the  plaintiff  in  consequence  of  the  locks  not  being 
kept  in  repair.  And  in  Townsend  v.  The  Susquehanna  Turnpike 
Company  (6  Johns.  91,)  an  action  was  supported  for  the  loss  of  a  horse, 
killed  by  the  falling  of  a  bridge,  which  the  company  had  built  of  bad 
materials.  These  authorities  put  it  beyond  doubt,  that  the  form  of 
action,  in  the  present  case,  is  good. 

The  objection  to  the  declaration  remains  to  be  considered.  It  is 
said,  that  the  act  of  assembly,  by  which  this  company  is  chartered, 
gives  them  power  to  erect  bridges  over  all  the  streams  which  cross  the 
road,  and,  therefore,  they  are  not  responsible  for  any  damages  which 
may  be  suffered  in  consequence  of  these  bridges.  But  this  is  too 
broad  a  proposition  :  for,  granting  that  they  wouldjioL-be  responsible 
for  damages  unavoidably  resulting  froin  a  bridge  built  in  the  best  man- 
i£s£  and  obstructing  the  passage  of  the  water,  no  more  than  was  neces- 
sary for  its  proper  cpjnstruction,  it  would^not-ibllow  that. the}'  should 
not  be  answerable  for  damages  arising  from  a.  bridge  so  carelessly  or 
in  artificially  built,  as  to  occasion  an  unnecessary^anjLwanton  obstruc- 
tion. Now,  the  declaration  alleges,  that  the  defendants  contriving, 
and  wrongfully  and  injuriously  intending  to  injure  the  plaintiff,  &c.  did 
wrongfully  and  unjustly  set  up  certain  piers,  &c.  So  that  we  are 
bound,  after  verdict,  to  suppose  that  it  was  proved  the  defendants  were 
in  fault,  in  the  manner  of  erecting  the  piers.  To  sa}~,  now,  that  they 
were  guiltjv  of  no  wrong,  would  be  to  declare  thatT  it  is  impossible  for 


400 


CHILDS   V.   BANK   OF   THE   STATE   OF  MISSOURI. 


them  to  j>e  made^  answerable  for  any  j/njury  which  may  arise  from 
any  kind  of  bridge  or  piex&r-  This  is  going  farther  than  I  can  permit 
myself  to  do,  being  satisfied  that  the  law  never  intended  to  authorise 
damage  without  necessity.  Whether  the  company  would  be  answerable 
for  damages  occasioned  by  a  bridge  or  piers,  of  proper  construction,  is 
a  point  of  great  importance,  on  which  I  give  no  opinion,  as  it  does  not 
arise  in  this  case.  I  am  of  opinion,  on  the  whole,  that  the  judgment 
should  be  affirmed.  Judgment  affirmed. 


I 


CHILDS  v.  BANK  OF  THE  STATE  OF  MISSOURI. 

1852.     17  Missouri,  213. 

CHILDS  brought  an  action  under  the  new  code,  alleging  that  the  de- 
fendant had  falsely  accused,  and  caused  him  to  be  accused  of  embez- 
zlement, and  upon  this  charge  had  unjustly  and  maliciously,  and  without 
probable  cause,  caused  him  to  be  arrested  and  imprisoned ;  that  under 
color  of  a  search  warrant,  the  defendant  had  obtained  possession  of  cer- 
tain valuable  papers  and  evidences  of  debt  belonging  to  the  plaintiff ; 
that  the  defendant  had  caused  the  dwelling  house  of  plaintiff  to  be 
ieset  by  armed  men  by  day  and  by  night,  thus  restraining  the  plaintiff 
and  his  family  of  their  liberty,  and  interrupting  their  intercourse  with 
their  friends  ;  and  that  the  defendant  had  falsely  and  maliciously  caused 
the  plaintiff  to  be  indicted  and  prosecuted  ;  lor  all  which  grievances,  the 
plaintiff  claimed  damages  to  the  amount  of  fifty  thousand  dollars. 

A  demurrer  to  this  petition  was  sustained,  and  the  cause  is  brought 
to  this  court  by  writ  of  error. 

Edward  Bates,  for  plaintiff  in  error.     The  bank,  as  a  corporation, 
was  legally  capable  of  doing  all  the  wrongs  charged  in  the  petition ; 
but  if  capable  of  doing  any  one  of  them,  it  was  erroneous  to  sustain 
the  demurrer.     Our  statute  law  puts  corporations  and  private  persons 
on  the  same  footing.     R.  C.  1845,  ch.  101,  §  10.     Our  statute  of  set- 
off  is  not  restrained  to  natural  persons.     City  of  St.  Louis  v.  Rogers, 
0   7  Mo.  R.  19.     The  federal  courts  consider  corporations  as  the  mere 
aggregate  of  the  individual  members,  and  take  or  refuse  jurisdiction  ac- 
J  cordingly.     Hope  Insurance  Co.  v.  Boardman,  5  Cranch,  57.    Bank 
(  v.  Deveaux,  ib.  61.     Bank  V.  <S.  v.  Planters'  Bank,  9  Wheat.  904. 
7  Kirkpatrick  v.  White,  4  Wash.  C.  C.  R.  595.     A  money  corporation 
*p  may  commit  a  trespass,  and  it  is  sufficient  to  charge  the  corporation 
^as  a  trespasser,  that  its  president  ordered  the  sheriff  to  execute  a  writ. 
Ford  v.  Perpetual  Insurance  Co.,  11  Mo.  Rep.  295.     In  the  nature  of 
things,  corporations  are  as  capable  of  doing  wrongful  acts,  as  private 
persons  are,  and  justice  requires  that  they  should  be  held  responsible 
for  them  in  the  same  way ;  and  this  is  the  settled  doctrine  of  the  com- 


CHILDS   V.   BANK   OF   THE   STATE   OF   MISSOURI.  4Q1 

mon  law.  Yar borough  v.  Sank  of  England,  16  East,  6.  Parsons  v. 
Loyd,  3  Wilson's  Rep.  Goodloe  v.  Cincinnati,  4  Ohio,  513.  4  S.  & 
R.  6.  Angell  &  Ames  on  Corporations,  (3d  ed.)  385,  §  7,  and  espe- 
cially p.  391. 

Miron  Leslie,  for  defendant  in  error.  It  is  physically  and  legally 
impossible  that  a  corporation,  as  such,  can  maliciously  prosecute,  or 
wilfully  slander  any  one.  Kyd  on  Corporations.  Bacon's  Ab.  4  Serg. 
&  R.  6.  16  East,  6.  20  Maine  Rep. 

RYLAND,  Judge,  delivered  the  opinion  of  the  court. 

1.  The  difficulty  under  which  we  have  labored  in  this  case,  was  to 
classify  the  action.  It  is  brought  under  the  new  code.  If  it  were  an 
action  of  slander,  we  should  at  once  say  that  it  could  not  be  maintained. 
The  bank  is  a  corporation  —  it  cannot  utter  words  —  it  has  no  tongue 
—  no  hands  to  commit  an  assault  and  batter}'  with  —  no  mind,  heart  or 
soul  to  be  put  into  motion  by  malice  ;  therefore,  if  it  was  an  action  for 
an  assault  and  battery,  or  for  a  malicious  prosecution,  or  for  slander, 
we  should  at  oncfc  say,  that  such  could  not  be  maintained.  Yet  the 
doctrine  is  well  settled  that  corporations  are  now  liable  for  torts,  in 
some  cases,  in  the  same  manner  as  persons  individually  are.  The  bank 
of  England  has  been  sued  in  trover  and  the  action  sustained.  Many 
corporations  have  been  sued  for  the  misfeasance  or  malfeasance  or  neg- 
ligence of  their  servants  or  agents.  Yet  I  have  not  been  able  to  find 
where  a  public  or  private  corporation  was  sued,  either  for  slander,  ma- 
liciojuj_rjnisiiettUan^_felse_Jnn3risonment  or  for  assault  and  battery,  aM 
the  action  held  maintainable.  In  the  nature  of  things,  manifest  injus- 
tice might  follow  from  allowing  such  actions.  In  such  corporations, 
the  majority  of  the  incorporators  rule  and  manage  the  affairs,  appoint 
agents,  officers  and  servants,  and  direct  their  conduct. 

Suppose  the  majority  of  directors  of  a  bank  should,  by  a  vote,  order 
one  of  its  servants  to  strike  a  man,  or  to  have  a  man  accused  of  lar- 
ceny, and  have  him  arrested  and  imprisoned ;  these  acts  were  ordered 
to  be  done  by  a  majority,  against  the  votes  and  wishes  of  the  minority. 
/Now  let  the  corporation  be  held  liable  to  be  sued  as  such,  and  the  inno- 
Icent  must  suffer  with  the  guilty,  the  non-offending  with  those  directing 
/  and  ordering  the  injury.  This  cannot  be.  In  20  Maine  Rep.  43,  State 
v.  Great  Works  Milling  and  Manufacturing  Co.,  it  is  said  by  Chief 
Justice  "VVeston,  ;i  a  corporation  is  created  by  law  for  certain  beneficial 
purposes.  They  can  neither  commit  a  crime  or  misdemeanor  by  any 
positive  or  affirmative  act,  or  incite  others  to  do  so  as  a  corporation.  It 
is  a  doctrine  in  conformity  with  the  demands  of  justice  and  a  proper 
distinction  between  the  innocent  and  the  guilt}-,  that  when  a  crime  or 
misdemeanor  is  committed  under  color  of  corporate  authority,  the  indi- 
viduals acting  in  the  business  and  not  the  corporation  should  be  indicted." 
In  1  Ohio  Rep.  28,  Orr  v.  Hank  of  United  States  and  others,  one  of 
the  questions  was,  "  whether  a  corporation  aggregate  is  liable  to  be  sued 
by  its  corporate  name,  in  an  action  of  trespass  for  an  assault  and  bat- 
tery and  false  imprisonment.'"'  In  this  case,  Judge  Burnet  delivered  the 

26 


402  EASTERN   COUNTIES   EAILWAY   CO.   V.   BROOM. 

opinion  of  the  court.  He  reviewed  the  cases  from  the  earliest  report- 
ers, Thorp's  opinion  in  22  Ass.  67,  down  to  12  Johns.  227 ;  14  Johns. 
118;  7  Mass.  169;  16  East,  Yarborough  v.  Bank  of  England; 
7  Cranch,  299;  and  concludes  on  this  point  thus:  "On  the  whole, 
whatever  exceptions  may  exist  to  the  rule,  that  actions  of  trespass  gen- 
erally do  not  lie  against  corporations,  it  is  evident  that  the  action  now 
under  consideration  cannot  be  one  of  the  exceptions,  and  therefore 
that  it  cannot  be  sustained  against  the  bank." 

"An  action  for  an  assault  and  battery  committed  on  a  corporation 
aggregate  in  their  corporate  character^_gnn1H  ho  ^  novelty  in  judicial 
"pfoceedingg^;  and  yet  it  appears  fc>  be  as  contrary  to  reason  and  com- 
mon sense,  that  they  should  be  the  agents  in  such  a  trespasst  as  it  is 
that  they  should  be  the  objects  o^f  it."  Malicious  prosecution  —  false 
imprisonment  —  slander,  must  all  come  within  the  principles  of  these 
decisions.  The  persons  doing  the  deed  are  liable  individually,  not  the 
corporation.  We  therefore  think  in  this  action,  that  the  court  below 
properly  sustained  the  demurrer. 

[The  court  then  intimated  that,  although,  under  the  new  code,  a 
plaintiff  may  unite  in  his  petition  as  many  causes  of  action  as  he  may 
have,  yet  each  cause  should  be  distinctly  and  separately  stated.  The 
opinion  concludes  as  follows  :] 

Upon  the  whole  of  the  matter  set  forth  in  the  petition,  it  is  to  be 
seen,  that  if  such  things  did  take  place  as  therein  charged  against  the 
bank,  its  servants  or  agents  or  officers  may  be  responsible  to  the  per- 
sons injured,  and  against  such  the  law  affords  a  remedy. 

The  judgment  below  should,  then,  be  affirmed,  and  such  being  the 
opinion  of  Judge  Scott,  (Judge  Gamble  not  sitting  in  this  cause,)  it  is 
affirmed  accordingly. 


EASTERN   COUNTIES   RAILWAY  CO.  v.  BROOM. 

1851.     6  Exchequer,  314.1 

IN  the  Exchequer  Chamber.  Error  on  a  bill  of  exceptions.  Broom 
sued  the  Railway  Company  and  one  Richardson  in  trespass  for  assault 
and  imprisonment.  There  was  a  verdict  for  plaintiff.  One  question 
argued  on  the  bill  of  exceptions  was,  whether  an  action  of  trespass  for 
assault  and  battery  will  lie  against  a  corporation  aggregate.  The 
alleged  assault  and  imprisonment  were  the  acts  of  one  Richardson,  a 
servant  of  the  Railroad  Company,  committed  in  the  course  of  his 
attempt  to  enforce  certain  b3*-laws  of  the  Company  relative  to  passen- 
gers' delivering  up  tickets  and  paying  fares. 

1  Only  so  much  of  the  case  is  given  as  relates  to  one  point ;  and  the  statement  as 
to  that  point  is  abridged.  —  ED. 


EASTERN   COUNTIES   RAILWAY   CO.   V.   BROOM.  403 

Willes,  for  plaintiff,  in  error. 

First,  trespass  for  assault  and  battery  does  not  lie.  This  objection 
is  open  to  the  plaintiffs  in  error  in  arrest  of  judgment,  as  it  arises  on 
the  pleadings.  It  may  be  admitted,  that  in  some  cases  trespass  lies 
against  a  corporation  aggregate ;  as,  for  instance,  trespass  for  taking 
goods,  but  there  the  matter  falls  within  the  original  scope  of  their 
powers :  Maund  v.  Monmouthshire  Canal  Company,  4  M.  &  Gr.  452.1 
For  a  corporation  has  authority  to  deal  with  property.  But  it  cannot 
be  said  that  the  commission  of  a  tort  b}-  a  trespass  to  the  person  falls 
within  their  duties.  In  1  Blac.  Com.  476,  it  is  said,  that  a  corporation 
"  can  neither  maintain  nor  be  made  defendant  to  an  action  of  battery 
or  such  like  personal  injuries ;  for  a  corporation  can  neither  beat  nor 
be  beaten  in  its  body  politic ; "  and  reference  is  made  to  Br.  Abr.  tit. 
"  Corporation,"  63.  So  in  Vin.  Abr.  tit  "  Corporations  "  (P.)  2,  it  is 
laid  down,  that  "  trespass  does  not  lie  against  commonalt}-,  but  shall 
be  brought  against  the  persons  by  their  proper  names  ;  "  and  it  is  also 
stated  in  the  same  work,  that  "  a  corporation  cannot  be  beaten  in  their 
corporate  but  in  their  natural  body ;  nor  a  corporation  cannot  beat 
another,  nor  do  treason  or  felon}*  in  their  corporation :  "  Vin.  Abr. 
"  Corporations  "  (Z.)  2  ;  and  the  same  proposition  of  law  is  laid  down 
in  the  Year  Book,  21  Edw.  4,  7,  12,  &c.  [MAULE,  J.  —  That  must  be 
taken  to  mean,  that  a  corporation  is  not  liable  criminaliter  for  such 
acts.]  In  1  Kyd  on  Corporations,  p.  71,  the  proposition  is  broadly 
laid  down  :  "  Neither  can  it  do  or  receive  a  personal  injury  ;  and  there- 
fore can  neither  sue  nor  be  sued  in  an  action  of  trespass  for  battery  or 
false  imprisonment."  A  corporation  is  indictable  for  non-performance 
of  such  matters  as  are  cast  upon  them  by  law,  and  which  therefore  fall 
within  the  scope  of  their  duties.  In  Reg.  v.  The  Birmingham  and 
Gloucester  Railway  Company,  3  Q.  B.  223, 2  a  corporation  aggregate 
was  indicted  for  disobedience  to  an  order  of  justices,  requiring  them 
to  execute  certain  works  according  to  a  statutory  provision.  The  fol- 
lowing cases  proceeded  upon  the  principle  within  which  the  plaintiffs 
in  error  contend  their  case  falls :  Reg.  v.  The  Great  North  of  England 
Railway  Company,  9  Q.  B.  315.8  In  The  King  of  the  Two  Sicilies  v. 
The  Peninsular  and  Oriental  Steam  Packet  Company,  19  L.  J.,  Chanc., 
488,  the  Vice-Chancellor  expressed  an  opinion  that  the  defendants,  a 
corporation,  could  not  be  indicted  under  the  Enlistment  Act.  [WIGHT- 
MAN,  J.  —  If  a  corporation  can  hold  realt}-,  why  may  not  they  commit 
an  assault  by  turning  a  trespasser  off  their  land  ?  Their  answer  to  an 
action  would  be,  that  although  they  committed  the  assault,  it  was  com- 
mitted in  the  defence  of  their  property.]  In  the  recent  case  of  Chilton 
v.  The  London  and  Croj-don  Railway  Companj-,  16  M.  &  W.  212,  the 
plaintiff  succeeded  in  an  action  of  trespass  and  assault  against  the 
Company,  but  the  present  objection  was  not  raised.  [MAULE,  J.  —  Is 
it  not  still  open  to  them  ?] 

1  E.  C.  L.  R.  vol.  56.  2  Id.  30.  8  Id.  5. 


404  EASTERN   COUNTIES  RAILWAY   CO.   V.   BROOM. 

Secondly,  if  this  action  lies  against  a  corporation  aggregate,  the 
agent  by  whom  the  trespass  is  committed  on  their  behalf  must  be  duly 
authorized  to  commit  it  by  deed,  under  the  common  seal  of  the  Com- 
pany*  An  assault  is  not  an  every  day  act,  which  a  corporation  ma}' 
direct  without  the  intervention  of  a  solemn  instrument.  [PATTESON,  J. 
—  I  think  it  doubtful  whether  this  point  is  open  upon  this  bill  of  ex- 
ceptions :  no  objection  of  the  kind  was  made.]  It  was  objected,  that 
there  was  no  sufficient  evidence  to  render  the  Company  liable.  [PAT- 

iTESON,  J.  —  We  are  all  agreed  that  there  is  no  necessity  for  the  cor- 
porate seal.] 
Watson,  contrti.  —  The  proposition,  that  an  action  of  trespass  for  an 
assault  does  not  lie  against  a  corporation,  is  untenable  in  the  present 
age.  There  is  no  satisfactory  reason  to  be  given  why  the  dicta  to  be 
found  in  the  old  cases  should  apply  to  the  present.  It  has  been  held, 
that  trespass  quare  clausura  fregit  and  for  taking  goods  lies  against  a 
corporation :  Maund  v.  The  Monmouthshire  Canal  Company.  There 
is  no  distinction  between  injury  to  the  person  or  to  property  as  affects 
this  question.  The  argument  of  the  plaintifls^in  error  is  reduced  to, 
this,  that  a  corp'oration  cannot  commit  a  trespass,  except  when  they 
may  .justify  it.  But  surely  a  corporation  may  justify  acts  done  by  their 
authority^  in  the  protection  of  their  property.  The  servautsT~~of  a 
Railway  Company  may  remove  trespassers ;  by  the  same  rule,  if  the 
removal  be  wrongful,  the  Company  may  be  liable  for  it.  Many  ab- 
surdities would  ensue  if  this  were  not  so.  Upon  that  principle,  a 
Company  would  not  be  liable  for  accidents  occasioned  by  the  negli- 
gence of  their  servants,  as  in  the  case  where  a  party  is  injured  by  a 
collision.  The  true  rule  is  laid  down  by  PARKE,  B.,  in  delivering  the 
judgment  of  the  Court  of  Exchequer  in  Sharrod  v.  London  and  North 
Western  Railway  Company,  4  Exch.  585.  The  old  authorities  may 
be_disposed  of  on  the  ground  that  a  corporation  Aggregate  is  nnf-.  liable 
criminaliter  for  the  acts  of  its  servants.  The  propositions  in  the  text 
books  cited  have  been  founded  upon  a  misconstruction  or  an  improper 
extension  of  the  opinion  laid  down  in  the  Year  Books.  If  the  rule  be 
correct,  that  a  person  has  a  remedy  against  the  Company  for  the  loss 
T5f~his  goods,~5e  has  a  like  remedy  for  an  assault  committed  against 
him  in  the  defence  of  those  goods.  His  remedy  against  the  servant 
might  be  of  no~value  whatever  to  him,  asTJeTmight  be  insolvent.  It  is 
clear  that,  on  the  one  hand,  TOTnecessary  tcTThe  existence  of  these 
Companies,  that  they  should  have  the  power  of  enforcing  such  rules  and 
regulations  as  are  necessarily  required  for  carrying  on  the  traffic ; 
and  on  the  other  hand,  it  is  equally  essential  that  the  personal  safety 
and  comfort  of  the  public  should  be  rightly  defended.  In  Reg.  v.  The 
Great  North  of  England  Railway  Company,  9  Q.  B.  326,1  Lord  DEN- 
MAX,  C.  J.,  said,  "  The  Court  of  Common  Pleas  lately  held,  that  a  cor- 

1  E.  C.  L.  R.  vol.  58. 


EASTERN  COUNTIES   RAILWAY   CO.   V.    BROOM.  405 

poration  might  be  sued  in  trespass,  but  nobody  has  sought  to  fix  them 
with  acts  of  immorality.  These  plainly  derive  their  character  from  the 
corrupted  mind  of  the  person  committing  them,  and  are  violations  of 
the  social  duties  that  belong  to  men  and  subjects.  A  corporation, 
which  has  no  such  duties,  cannot  be  guilt}'  in  these  cases  ;  but  they  may 
be  guilty,  as  a  body  corporate,  of  commanding  acts  to  be  done  to  the 
nuisance  of  the  community  at  large." 

PATTESON,  J.  — I  have  conferred  with  my  learned  Brothers  upon  this 
case,  and  we  are  all  of  opinion  that  there  is  no  reason  why  we  should 
defer  our  judgment.  The  first  question  arises  on  the  declaration  itself, 
and  is  quite  independent  of  the  particular  circumstances  of  this  case. 
It  is  alleged,  on  the  part  of  the  plaintiffs  in  error,  as  a  general  broad 
proposition  of  law,  that  in  no  case  can  an  action  of  trespass  for  assault  ^ 
and  battery  lie  against  a  corporation  aggregate.  Whatever  ma}-  be 
the  pffaf't  nf  t.lip  authorities  in  the  Year  Books,  it  hasTbeen^xpressIy 
held,  in  mnHpm  ^mps,  fhnf  trespass  will  lie  against^ Corporation 
aggregate  for  breaking  and  entering  a  close,  and  for  seizing  goods.  This 
has  been  decided  by  several  recent  cases.  TKeinhe  question  is, 
whether  trespass  for  assault  and  battery  may  lie  against  a  corporation ; 
and  it  has  been  contended  that  it  cannot ;  for  it  is  said,  that  it  can 
neither  beat  nor  be  beaten.  No  doubt  that  proposition  is  true  of  it  as 
respects  its  corporate  capacity.  But  it  does  not  therefore  follow,  that  if 
a  corporation,  by  authority  under  seal,  direct  a  servant  to  apprehend 
and  imprison  a  particular  person,  an  action  for  assault  and  batter}7  can- 
not be  maintained  against  the  corporation.  The  learned  counsel  who 
appears  for  the  plaintiffs  in  error  must  contend,  in  order  to  show  that 
this  declaration  cannot  be  supported,  that  no  such  action  would  lie. 
But  we  are  all  clearly  of  opinion  that  it  is  not  so,  and  that  an_action  of  ,-\— 
trespass  for  assault  and  battery  will  lie__against  a  corporation y  when-_ 
ever  the  corporation  can  authorize  the  act  done,  and  it  is  done  by  theiu 
authoriiy_.  We  are  therefore  of  opinion  that  the  declaration  is  good : 
and  we  do  not  think  it  necessary  to  go  through  the  several  authorities 
upon  this  question.  The  next  question  is,  whether,  in  order  to  render 
the  corporation  liable  for  the  act  of  their  servant,  it  was  necessary  that 
that  servant  should  have  an  authority  by  deed.  It  has  been  decided, 
many  years  ago,  that  a  corporation  may  be  liable  in  tort  for  the  acts  of  r 
their  servants,  although  their  authority  be  not  under  seal.  It  is  not 
necessary,  therefore,  further  to  advert  to  this  point. 

[The  Court  then  held,  that  there  was  no  sufficient  evidence  that  any 
previous  direction  was  given  by  the  Company  to  its  servants  to  enforce 
the  by-laws  in  the  manner  here  attempted  ;  and  alsoAeft?,  that  there  was 
no  sufficient  evidence  of  ratification  by  the  Company.  On  these  grounds 
it  was  adjudged  that  there  must  be  a  venire  de  novo.'] 


406  PHILADELPHIA,  \V.,  AND   B.   R.   K.   CO.   V.    QUIGLEY. 


PHILADELPHIA,  W.,  &  B.  R.  R.  CO.  v.  QUIGLEY. 

1858.     21  Howard  (U.  S.),  202.1 

ERROR,  to  the  U.  S.  Circuit  Court  for  the  District  of  Maryland. 
Quigley  sued  the  P.  W.  &  B.  R.  R.  Co.  for  the  publication  of  a  libel 
by  them.     Defendants  pleaded  the  general  issue. 

An  investigation  was  made  by  the  directors  into  the  conduct  of  the 
superintendent,  including  the  dealings  of  the  superintendent  with  the 
plaintiff,    who   had   also   been   in   the   service   of   the    company.     In 
the  course  of  this  investigation,  the  president  addressed  a  letter  to  an 
architect,  requesting  his  opinion  as  to  the  skill  of  plaintiff  and  the  value 
of  plaintiff's  services.     The  reply  was  depreciative  of  the  plaintiff.    All 
the  testimony  collected  by  the  committee  was  reduced  to  writing  and 
printed  ;  first  for  the  use  of  the  president  and  directors,  and  afterwards 
was  submitted  to  the  company  at  their  meeting.     The  testimony,  with 
the  report  of  the  committee,  fills  two  printed  volumes.     The  letter  of 
the  architect,  in  answer  to  the  letter  of  the  president,  is  printed  in  one 
of  these  volumes,  and  this  publication  is  the  libel  complained  of. 
A  verdict  was  returned  for  the  plaintiff. 
Schley,  and  Donaldson,  for  plaintiffs  in  error. 
Johnson,  and  Davis,  for  defendant. 

CAMPBELL,  J.  [After  stating  the  case.]  The  defendants  contend 
that  they  are  not  liable  to  be  sued  in  this  action  ;  that  theirs  is  a  rail- 
road corporation,  with  defined  and  limited  faculties  and  powers,  and 
having  only  such  incidental  authority  as  is  necessary  to  the  full  exer- 
cise of  the  faculties  and  powers  granted  by  their  charter  ;  that,  being  a 
mere  legal  entity,  they  are  incapable  of  malice,  and  that  malice  is 
a  n£C£saarxJnj?rcdient^  in  a  libel ;  that  this  action  should  have  been 
instituted  against  the  natural  persons  who  were  concerned  in  the  publi- 
cation of  the  libel.  To  support  this  argument,  we  should  be  required 
to  concede  that  a  corporate  body  could  only  act  within  the  limits  and 
according  to  the  faculties  determined  by  the  act  of  incorporation,  and 
therefore  that  no  crime  or  offense  can  be  imputed  to  it.  That  although 
illegal  acts  might  be  committed  for  the  benefit  or  within  the  service  of 
the  corporation,  and  to  accomplish  objects  for  which  it  was  created  by 
the  direction  of  their  dominant  bod}7,  that  such  acts,  not  being  contem- 
plated by  the  charter,  must  be  referred  to  the  rational  and  sensible 
agents  who  performed  them,  and  the  whole  responsibility  must  be 
limited  to  those  agents,  and  we  should  be  forced,  as  a  legitimate  conse- 
quence, to  conclude  that  no  action  ex  delicto  or  indictment  will  lie 
against  a  corporation  for  any  misfeasance.  But  this  conclusion  would 
be  entirely  inconsistent  with  the  legislation  and  jurisprudence  of  the 
States  of  the  Union  relative  to  these  artificial  persons.  Legislation  has 

1  Statement  abridged.    Arguments  and  part  of  opinion  omitted.  —  ED. 


PHILADELPHIA,   W.,   AND   B.   R.   R.   CO.   V.   QUIGLEY.  407 

encouraged  their  organization,  as  they  concentrate  and  employ  the 
intelligence,  energy,  and  capital  of  society,  for  the  development  of 
enterprises  of  public  utility.  There  is  scarcely  an  object  of  general 
interest  for  which  some  association  has  not  been  formed,  and  there 
are  institutions  whose  members  are  found  in  every  part  of  the  Union, 
who  contribute  their  efforts  to  the  common  object.  To  enable  imper- 
sonal beings  —  mere  legal  entities,  which  exist  only  in  contemplation  of 
law  —  to  perform  corporal  acts,  or  deal  with  personal  agents,  the  prin-  <*""" 
ciple  of  representation  has  been  adopted  as  a  part  of  their  constitution. 
The  powers  of  the  corporation  are  placed  in  the  hands  of  a  governing 
body  selected  by  the  members,  who  manage  its  affairs,  and  who  ap- 
point the  agents  that  exercise  its  faculties  for  the  accomplishment  of 
the  object  of  its  being.  But  these  agents  may  infringe  the  rights  of 
persons  who  are  unconnected  with  the  corporation,  or  who  are  brought 
into  relations  of  business  or  intercourse  with  it.  As  a  necessary  nnr- 
relative  to  the  principle  of  the  exercise  of  corporate  pnwftcs_.^nd 
faculties  byHegal  representatives,  is  the  recognition  of  a  corporate  -^ 
lue  acts  of  those  representatives. 


With-  much  wariness,  and  arter  close  and  exact  scrutiny  into  the 
nature  of  their  constitution,  have  the  judicial  tribunals  determined  the 
legal  relations  which  are  established  for  the  corporation  by  their  gov- 
erning bod}-,  and  their  agents,  with  the  natural  persons  with  whom 
the}"  are  brought  into  contact  or  collision.  The  result  of  the  cases  is, 
that,  for  arts  dnnq  bj— flip  aorpntg  of  a  corporation,  eitlieY  in  contractu 
or  m^/g/fc^o,  in  ^he  course  £f  its  business^  and  of  their  employment, 
the  corporation  is  responsible,  as  aiTlndividual  is  responsible  under 
similar  cTfcum stances^  At  a  very  early  period  it  was  decided  in  Great 
Britain,  as  well  asTh  the  United  States,  that  actions  might  be  main- 
tained against  corporations  for  torts ;  and  instances  may  be  found,  in 
the  judicial  annals  of  both  countries,  of  suits  for  torts  arising  from  the 
acts  of  their  agents,  of  nearly  every  variety.  Trespass  quare  clausum 
fregit  was  supported  in  9  Serg.  and  R.  94 ;  4  Mann,  and  G.  452 ; 
Assault  and  Battery,  4  Gray  Mass.  R.  465  ;  6  Ex.  Ch.  314.  For  dam- 
ages by  a  collision  of  rail-cars  and  steamboats,  14  How.  465;  19  How. 
543.  For  a  false  representation,  34  L.  and  Eq.  R.  14;  11  Wheat.  59. 

The  case  of  the  National  Exchange  Co.  of  Glasgow  v.  Drew,  (2 
Macqueen  H.  of  L.  Cas.  103,)  was  that  of  a  company  in  failing  circum- 
stances, whose  managers  sought  to  appreciate  its  stock  by  a  fraudulent 
representation  to  the  company,  and  a  publication  of  the  report  as 
adopted  by  it,  that  its  affairs  were  prosperous.  Two  of  its  stockhold- 
ers were  induced  to  borrow  money  from  the  company  to  invest  in  its 
stock.  The  question  in  the  cause  was,  whether  the  company  was  re- 
sponsible for  the  fraud.  In  the  house  of  lords,  upon  appeal,  Lord  St. 
Leonards  said  :  "  I  have  come  to  the  conclusion,  that  if  representations 
are  made  by  a  company  fraudulently,  for  the  purpose  of  enhancing  the 
value  of  stock,  and  they  induce  a  third  person  to  purchase  stock,  those 
representations  so  made  by  them  bind  the  company.  I  consider  repre- 


408  PHILADELPHIA,   W.,  AND   B.   R.   R.   CO.   V.   QUIGLEY. 

sentations  by  the  directors  of  a  company  as  representations  03-  the 
company,  although  they  may  be  representations  made  to  the  company." 
.  .  .  The  report  "  beoompg  the  ant  of  {he  company  by  its  adoption  and, 
sending  it  forth  as  a  true  representation  of  their  aff'airsj  and  if  that 
representation  is  made  use  of  in  dealing  with  third  persons,  for  the 
benefit  of  the  company,  it  subjects  them  to  the  loss  which  may  accrue 
to  the  party  who  deals,  trusting  to  those  representations." 

It  would  be  difficult  to  furnish  a  reason  for  the  liability  of  a  corpora- 
tion for  a  fraud,  under  such  circumstances,  that  would  not  apply  to 
sustain  an  action  for  the  publication  of  a  libel. 

The  defendants  are  a  corporation,  having  a  large  capital  distributed 
among  several  hundred  of  persons.  Their  railroad  connects  large  cities, 
and  passes  through  a  fertile  district.  Their  business  brings  them  in 
competition  with  companies  and  individuals  concerned  in  the  business 
of  transportation.  They  have  a  numerous  bod}*  of  officers,  agents,  and 
servants,  for  whose  fidelity  and  skill  they  are  responsible,  and  on 
whose  care  the  success  of  their  business  depends.  The  stock  of  the 
company  is  a  vendible  security,  and  the  community  expects  statements 
of  its  condition  and  management.  There  is  no  doubt  that  it  was 
the  duty  of  thejpresident  and  directo^_to^jny^estigate  the  conduct  of 
their  officers  and  agents,  and  to  report  the  result  of  that  investigation 
to  the  stockholders,  and  that  a  publication  of  the  evidence  and  report 
is  within  the  scope  of  the  powers  of  the  corporation. 

But  the  publication  must  be  made  under  all  the  conditions  and  re- 
sponsibilities that  attach  to  individuals  under  such  circumstances.  The 
court  of  queen's  bench,  in  Whitefield  v.  South  Eas.  R.  R.  Co.,  (May, 
1858,)  say :  "  If  we  yield  to  the  authorities  which  say  that,  in  an  action 
for  defamation,  malice  must  be  alleged,  notwithstanding  authorities  to 
the  contrary,  this  allegation  may  be  proved  J3yjsjiowing_that  the  publi- 
cation of  the  libel  took  place  by  order  of  the  defendants,  and  was  there- 
fore wrohgTm,  although  the  rteft>pdant.s  had  no  ill  will  to  the  plaintiffs, 
ami  did  not  meajijtp_injin^_them/i  And  the  court  concluded:  "That 
for  what  is  done  by  the  authority  of  a  corporation  aggregate,  that  a 
corporation  ought  as  such  to  be  liable,  as  well  as  the  individuals  who 
compose  it." 

The  question  arises,  whether  the  publication  is  excused  by  the  rela- 
tions of  the  president  and  directors,  as  a  committee  from  their  board, 
to  the  corporation  itself.  It  cannot  be  denied  that  the  inquiries 
directed  by  those  officers  were  within  the  scope  of  their  power,  and  in 
the  performance  of  a  moral  and  legal  dut}',  and  that  the  communication 
to  their  constituents  of  the  evidence  collected  by  them,  and  their  con- 
clusions upon  the  evidence,  was  a  privileged  communication  in  the 
absence  of  any  malice  or  bad  faith.  Hirtjhe  privilege  of  the  officers  of 
the  corporation  as  individuals,  or  of  the  corporate  body,  does  not  ex^ 
tend  to  theTgrgservation  joOn^reporT^an^_e^dejce  in  the  permanent 
form  of  a  book  for  distribution  among  the  persons  belonging  to  the  cor- 
poration or  the  members  of  the  corn  in  unit}'.  It  has  never  been  decided 


PHILADELPHIA,  W.,   AND   B.   R.   R.   CO.   V.   QUIGLEY.  409 

that  the  proceedings  of  a  public  meeting,  though  it  may  have  been  con- 
vened by  the  authorit}*  of  law,  or  of  an  association  engaged  in  an 
enterprise  of  public  utility,   could  be  reported  in  a  newspaper  as  a 
privileged  publication.     But  a  libel  contained  in  such  proceedings,  1L_ 
preserved  in  the  form  of  a  bound  volume^  might  be^attended  with  more 
mischief  to  private  character  than  any  publication  in  a  newspaper  of — 
the  same  document.     The  opinion  of  the  court  is,  that  in  so  far  as  the 
corporate  body  authorized  the  puh1io.at-.inn  in  the  form  employed,  they 
are  responsible  in  damages.     The  circuit  court  instructed  the  jury : 

1.  [The  first  instruction  authorized  the  juiy  to  find  a  verdict  against 
defendants  upon  evidence  of  a  publication  which  took  place  after  the 
commencement  of  this  suit.] 

2.  And  if  the  jtny  find  for  the  plaintiff  under  the  first  instruction, 
they  are  not  restricted  in  giving  damages  to  the  actual  positive  injury 
sustained  by  the  plaintiff,  but  ma}-  give  such  exemplary  damages,  if 
any,  as  in  their  opinion  are  called  for  and  justified,  in  view  of  all  the 
circumstances  in  this  case,  to  render  reparation  to  plaintiff,  and  act  as 
an  adequate  punishment  to  the  defendant. 

The  first  instruction  is  erroneous,  because  the  publication  to  which 
the  court  referred  as  blameworthy,  and  to  authorize  the  jury  to  find  a 
verdict  against  the  defendant,  took  place  after  the  commencement  of 
this  suit. 

The  second  instruction  contains  the  same  error,  and  is  objectionable 
for  the  additional  reason  that  the  rule  of  damages  is  not  accurately 
stated  to  the  jur}*. 

In  Day  v.  Woodworth,  13  How.  S.  C.  R.  371,  this  court  recognized 
the  power  of  a  jury  in  certain  actions  of  tort  to  assess  against  the  tort- 
feaser  punitive  or  exemplary  damages.  Whenever  the  injury  complained 
qf_bas  been  inflicted  maliciously  orjwantonly.  and  with_  circumstances  of 
contumely  or  indignity,  the  jury  are  not  limited_tp_  the  ascertainment  of_ 
a  simple  compensation  for  the  wron8L_committed  against  the  aggrieved 
person.  But  the  malice  spoken  of  in  this  rule  is  not  merely  the  doing 
of  aiTunlawful  or  injurious  act.  The  word  implies  that  the  act  com-_ 
plained  of  was  conceived  in  the  spirit  of  mischief,  or  of  criminal  indif- 
ference  to  civil  obligations-  'Nothing  of  this  kind  can  be  imputed  to 
these  defendants. 

The  letter  of  Mahoney  was  reported  to  the  company  with  other  evi- 
dence that  rendered  it  innocuous,  and  its  statements  were  never  adopted 
by  them.  The  plaintiff  has  repeatedly  affirmed  that  he  had  derived  an 
advantage  from  the  investigation  by  the  company,  and,  upon  reading 
all  the  evidence,  as  reported  and  published,  we  do  not  perceive  how  an 
impression  unfavorable  to  him  could  have  been  made  by  it  upon  any 
candid  mind.  The  circumstances  under  which  the  evidence  was  col- 
lected, and  the  publication  made,  repel  the  presumption  of  the  existence 
of  malice  on  the  part  of  the  corporation,  and  so  the  jury  should  have 
been  instructed. 

[Omitting  part  of  opinion.] 


410  GREEN   V.   LONDON   GENERAL   OMNIBUS   CO. 

For  the  errors  we  have  noticed,  the  judgment  of  the  circuit  court  is 
reversed,  and  the  cause  remanded. 

DANIEL,  J.,  delivered  a  dissenting  opinion  ;  holding  that  there  should 
be  added  to  the  reversal  of  the  judgment  of  the  circuit  court  an  order 
for  a  dismission  of  the  suit. 


GREEN  v.  LONDON  GENERAL  OMNIBUS  CO.  (LIMITED). 

1859.     7  Common  Bench,  New  Series,  290. 

THIS  was  an  action  against  the  defendants  for  wrongfully  and  mali- 
ciously obstructing  the  plaintiff  in  his  business  of  an  omnibus  pro- 
prietor. 

The  declaration  stated,  that,  before  and  at  the  time  of  the  committing 
the  grievances  thereinafter  mentioned,  the  plaintiff  carried  on  the  trade 
and  business  of  a  carrier  of  passengers  for  hire  in  certain  public  streets, 
roads,  and  highways,  to  wit,  &c.,  by  means  of  certain  omnibuses  of 
the  plaintiff  drawn  by  horses  and  driven  and  conducted  by  the  servants 
of  the  plaintiff,  for  the  profit  and  benefit  of  the  plaintiff,  and  which 
said  omnibuses  of  the  plaintiff  had  full  liberty  and  right  to  run  respec- 
tively from,  &c.,  to,  &c.,  and  to  stop  for  a  reasonable  time  at  all  points 
and  places  on  and  along  the  said  public  streets,  roads,  and  highways, 
for  the  purpose  of  taking  up  and  putting  down  passengers,  and  at 
certain  points  and  places  in  the  said  streets,  roads,  and  highways 
where  numerous  passengers  were  accustomed  to  enter  the  omnibuses 
passing  such  points  and  places,  the  said  omnibuses  of  the  plaintiff  and 
nil  other  omnibuses  passing  that  way  were,  by  the  police  regulations 
then  lawfully  enforceable  and  enforced,  permitted  to  wait  for  a  certain 
space  of  time,  to  wit,  for  the  space  of  four  minutes,  to  look  for  pas- 
sengers, unless  by  their  so  doing  any  actual  obstruction  to  the  thorough- 
fares or  nuisance  to  the  inhabitants  near  the  places  was  caused  thereby  : 
Yet  the  defendants,  well  knowing  the  premises,  but  contriving  and 
intending  to  injure,  impoverish,  and  ruin  the  plaintiff,  and  to  prevent 
him  from  carrying  on  his  said  business,  at  divers  times  before  this 
suit,  wrongfully,  vexatiously,  and  maliciously  placed  and  drove  in  the 
public  streets,  roads,  and  highways  aforesaid,  certain  other  omnibuses 
and  carriages  just  before  and  just  behind  the  said  omnibuses  of  the 
plaintiff,  whilst  the  same,  with  the  plaintiff's  horses  drawing  the  same, 
were  plying  for  passengers  for  hire  in  the  public  streets,  roads,  and 
highways  as  aforesaid,  and  with  which  the  plaintiff  was  then  carrying 
on  his  said  business,  in  such  a  manner  as  to  hinder  and  prevent, 
frighten,  and  deter  great  numbers  of  persons  from  entering  the  plain- 
tiff's said  omnibuses  and  becoming  passengers  therein  for  hire,  as  they 
otherwise  might  and  would  have  done,  and  so  as  to  hinder  and  prevent 


GREEN  V.  LONDON  GENERAL  OMNIBUS  CO.         411 

the  plaintiff  from  having  the  free  use  of  the  said  streets,  roads,  and 
highways  with  his  said  omnibuses  and  horses  in  so  large  and  ample  a 
manner  as  he  otherwise  might  and  would  have  done,  and  so  as  to 
retard,  delay,  and  stop  the  said  omnibuses  of  the  plaintiff,  and  so  as 
greatl}1  to  obstruct  and  encumber  the  said  highways,  to  the  nuisance  of 
the  Queen's  subjects  then  lawfully  using  the  same :  And  further  the 
plaintiff  said  that  the  defendants  wrongfully,  vexatiously,  and  mali- 
ciously drove  and  placed  in  the  public  streets,  roads,  and  highwa^vs 
aforesaid,  certain  other  carriages  and  omnibuses  upon  and  against  the 
said  omnibuses  and  horses  of  the  plaintiff,  and  upon  and  against  the 
servants  of  the  plaintiff  then  conducting  the  same,  while  the  said  omni- 
buses, with  the  plaintiff's  horses  harnessed  to  the  same,  and  the  plain- 
tiff's said  servants  conducting  the  same,  were  plying  and  waiting  for 
passengers  for  hire  in  the  public  streets,  roads,  and  highways  aforesaid, 
and  with  which  the  plaintiff  was  then  carrying  on  his  said  business  as 
aforesaid,  in  such  a  manner  as  thereby  to  bruise,  damage,  and  injure 
the  said  omnibuses  and  horses  of  the  plaintiff,  and  to  prevent  the  doors 
of  the  said  omnibuses  from  being  opened,  and  to  obstruct  and  block  up 
the  access  of  passengers  into  the  said  omnibuses  of  the  plaintiff,  and 
to  hinder  and  disable  the  said  servants  of  the  plaintiff  from  freel}*  and 
fully  performing  their  duties  to  the  plaintiff  in  the  conduct  and  manage- 
ment of  the  said  omnibuses  of  the  plaintiff,  and  •whereb}'  the}7  were  so 
hindered   and   disabled  as   aforesaid   accordingly :   And   the   plaintiff 
further  said  that  the  defendants   also,   contriving   and  intending   as 
aforesaid,  at  the  several  times  aforesaid  also  wrongfully,  vexatiously  > 
and  maliciously,  in  the   said   public   streets,  roads,  and   highways, 
thrust  and  pushed  themselves,  and  caused  their  servants  to  and  they 
did  thrust,  push,  and  place  themselves  between  the  said  omnibuses  of 
the  plaintiff  while  plying  and  waiting  for  passengers  as  aforesaid  in  the 
•waj*  of  the  plaintiffs  said  business,  and  divers  persons  who  were  desir- 
ous to  enter  and  get  into  and  on  to  the  same  as  passengers  for  hire,  so 
as  thereby  to  obstruct  the  entrance  and  access  of  such  passengers  into 
and  upon  the  said  omnibuses  of  the  plaintiff,  and  to  hinder,  deter,  and 
prevent  them  from  entering  the  same  or  becoming  passengers  therein  : 
And  further,  in  continuation  of  this  count,  the  plaintiff  said  that  the 
defendants  also  contriving  and  intending  as  aforesaid,  at  the  several 
times   aforesaid,  wrongfully,  vexatiously,   and  maliciously  insulted, 
hissed  and  assaulted,  beat,  and  ill-used  the  plaintiff's  servants  in  the 
said  public  streets,  roads,  and  highways,  while  they  were  employed  in 
driving,  conducting,  and  managing  the  said  omnibuses  in  the  wa}*  of 
the  plaintiff's  said  business,  and  were  plying  and  waiting  for  passengers 
therewith  in  the  said   public  streets,    roads,  and  highways :  And  in. 
continuation  of  that  count  the  plaintiff  further  said  that  the  defendants, 
well  knowing  the  points  and  places  in  the  said  respective  roads  at 
which  the  plaintiffs  omnibuses,  by  the  said  police  regulation  in  the 
introductory  part  of  that  count  mentioned,  were  permitted  to  remain 
for  a  certain  space  of  time,  to  wit,  for  the  space  of  four  minutes  as 


412  GREEN   V.    LONDON   GENERAL   OMNIBUS   CO. 

aforesaid,  wrongfully  ^  maliciously,  and  vexatiously,  and  for  the  ex- 
press purpose  of  annoying  the  plaintiff  and  causing  such  an  obstruction 
of  the  thoroughfares  at  the  said  points  and  places  in  the  said  public 
streets  and  roads  as  aforesaid  as  would  induce  and  oblige  the  police 
there  stationed  to  order  off  the  omnibuses  of  the  plaintiff  from  the  said 
points  and  places  before  the  said  omnibuses  had  remained  at  the  said 
points  and  places  for  the  said  space  of  time  which  by  the  police  regu- 
lations aforesaid  they  were  permitted  to  remain,  and  thereby  to  prevent 
passengers  who,  if  the  plaintiff's  omnibuses  had  so  remained,  would 
have  come  and  entered  into  and  mounted  upon  the  plaintiffs  said 
omnibuses,  from  so  doing,  caused  one  or  more  of  their,  the  defendants', 
omnibuses,  drawn  by  their  horses,  and  driven  and  conducted  by  their 
drivers  and  conductors,  to  precede  and  follow  each  omnibus  of  the 
plaintiff  as  such  omnibus  approached  near  to  and  arrived  at  each  or 
any  of  the  said  points  and  places  in  the  said  public  streets,  roads,  and 
highways,  in  such  a  manner  as  to  cause  such  an  obstruction  to  the 
thoroughfares  at  such  points  and  places,  and  such  a  nuisance  to  the 
inhabitants  near  the  said  points  and  places,  as  would  induce  and 
oblige,  and  which  did  induce  and  oblige,  the  police  there  stationed 
to  order  and  command  that  the  plaintiff's  omnibuses  should  move  off 
from  the  said  points  and  places  in  the  said  public  streets,  roads,  and 
highways,  before  they  had  remained  there  for  that  space  of  time  which 
but  for  the  defendants'  wrongful  contrivance  and  conduct  they  other- 
wise might  and  would  have  done,  and  thereby  they  the  defendants 
prevented  numerous  passengers  from  entering  and  riding  upon  the 
plaintiff's  said  omnibuses  for  hire,  as  they  otherwise  might  and  would 
have  done :  by  reason  of  which  said  several  grievances  in  that  count 
respectively  mentioned,  great  numbers  of  persons  were  on  the  several 
days  and  times  aforesaid  hindered,  deterred,  and  prevented  from  be- 
coming passengers  for  hire  by  the  plaintiffs  said  omnibuses,  as  they 
otherwise  would  have  done,  and  the  plaintiff's  omnibuses  and  horses 
were  great!}'  injured,  &c.,  and  the  plaintiff  was  greatly  damaged, 
hindered,  and  obstructed  in  carrying  on  his  said  business,  &c.,  &c. 

To  this  declaration  the  defendants  demurred  ;  and  the  plaintiff  joined 
in  demurrer. 

Giffard  (with  whom  was  Paterson*),  in  support  of  the  demurrer.— 
The  declaration  alleges  a  variety  of  malicious  acts  done  by  the  com- 
pany with  the  intention  of  obstructing  and  injuring  the  plaintiff  in 
carrying  on  his  trade.  Now,  the  gist  of  the  action  is  the  malicious 
intention  ;  and  a  corporation  cannot  as  such  be  actuated  by  malice.  A 
corporation,  according  to  Lord  Coke,  —  Sutton's  Hospital  Case,  10  Co. 
Rep.  32  b,  —  "cannot  treason,  nor  be  outlawed,  nor  excommunicate, 
for  they  have  no  souls  ;  neither  can  they  appear  in  person,  but  by  attor- 
ney ;  33  H.  8,  Br.  Fealty.  A  corporation  aggregate  of  many  cannot 
do  fealty,  for,  an  invisible  body  can  neither  be  in  person,  nor  swear: 
Plowd.  Comm.  213,  and  the  Lord  Berkeley's  Case,  245 :  it  is  not  sub- 
ject to  imbecilities,  death  of  the  natural  body,  and  divers  other  cases." 


GREEN  V  LONDON  GENERAL  OMNIBU&  CO.         413 

The  question  is  how  far  the  old  rule  of  law  in  this  respect  is  modified 
by  the  recent  decisions  upon  the  subject.  The  most  recent  authority 
on  the  point  is  that  of  Whitfield  v.  The  South  Eastern  Railway  Com- 
pany, 1  Ellis,  B.  &  E.  115  (E.  C.  L.  R  vol.  96),  where  it  was  held  that 
a  count  against  a  railway  company,  being  a  corporation  aggregate,  for 
a  malicious  libel,  is  good  on  demurrer ;  for  that  a  corporation  aggregate 
may  well,  in  its  corporate  capacit}",  cause  the  publication  of  a  defama- 
tory statement  Binder  such  circumstances  as  would  imply  malice  in  law 
sufficient  to  support  the  action.  But  there  the  judgment  proceeded 
upon  tue  ground  that  the  occasion  did  not  justify  the  publication,  and 
therefore  the  law  would  infer  malice. 

[After  distinguishing  Eastern,  &c.,  11.  Co.  v.  Broom,  6  Exch.  314, 
the  argument  proceeds  :  ] 

All  the  acts  that  are  here  attributed  to  the  company  are  acts  which 
are  necessarily  malicious.  The  plaintiff  must  show  that  he  has  been 
injured  by  the  defendants'  placing  their  omnibuses  before  and  behind 
his  maliciously.  Apart  from  malice,  there  is  no  cause  of  action. 
The  company  in  its  corporate  capacity  could  not  authorize  jict§Lwhieh 
are  necessarily  unlawful  and  malicious.  The  mere  obstruction  by  the 
defemlants  of  the  plaintiffs  enjoyment  of  a  public  wa}'  gives  no  ground 
of  action :  he  must  show  a  private  and  particular  damage  from  an  act 
of  the  defendants  which  is  intentionally  malicious  or  unlawful :  Hubert 
v.  Groves,  1  Esp.  N.  P.  C.  148 ;  Rose  v.  Miles,  4  M.  &  Selw.  101 ; 
Wilks  v.  The  Hungerford  Market  Company,  2  N.  C.  281  (E.  C.  L.  R. 
vol.  29),  2  Scott  446  (E.  C.  L.  R.  vol.  30).  Here,  the  plaintiff  has 
suffered  no  grievance  which  is  peculiar  to  himself.  [BYLES,  J. — 
What  is  the  meaning  of  maliciously?  ERLE,  C.  J.  —  A  wilful  viola- 
tion of  the  law  producing  damage  to  an  individual,  must  be  presumed 
to  be  malicious.]  To  sustain  this  declaration,  the  plaintiff  must  show 
some  wilful  and  unlawful  and  unauthorized  interference  by  the  defend- 
ants with  some  private  right.  \_Grant,  Amicus  Curise,  referred  to  the 
Quo  warranto  in  Rex  v.  The  Cit\-  of  London,  8  Howell's  State  Trials 
1039,  1305,  1309,  where  the  subject  of  malice  in  a  corporation  is  much 
discussed.  CROWDER,  J.  —  Would  this  declaration  be  bad  without  the 
allegation  of  malice?  Does  the  allegation  mean  anything  more  than 
wilful?]  It  is  submitted  that  the  whole  gist  of  the  action  is  the  malice. 
The  defendants  could  not  justify  the  specific  acts  charged  without 
justifying  the  malicious  intention  :  Gregorj-  v.  The  Duke  of  Brunswick, 
6  M.  &  G.  205  (E.  C.  L.  R.  vol.  46),  6  Scott  N.  R.  809. 

F.  Edwards,  contra.     [Argument  omitted.] 

Giffard,  in  reply.     [Argument  omitted.] 

Cur.  adv.  vult. 

ERLE,  C.  J.,  now  delivered  the  judgment  of  the  court :  — 

We  are  of  opinion  that  our  judgment  in  this  case  ought  to  be  for  the 
plaintiff.  This  is  an  action  against  the  defendants  for  wrongfully, 
vexatiously,  and  maliciously  interfering  with  the  plaintiff's  rights,  by 
causing  their  vehicles  to  be  driven  in  such  a  manner  as  to  obstruct  and 


414         GREEN  V.  LONDON  GENERAL  OMNIBUS  CO. 

molest  the  plaintiff  in  the  use  of  the  highway.  The  declaration  alleges 
various  grievances  of  that  general  character.  To  this  declaration  there 
is  a  demurrer  raising  for  our  decision  the  question  whether  the  action 
will  lie.  The  ground  of  the  demurrer  is  that  the  declaration  charges  a 
wilful  and  intentional  wrong,  and  that  the  defendants,  being  a  corpora- 
tion, cannot  be  guilty  of  such  a  wrong,  and  therefore  the  action  will 
not  lie.  But  the  whole  of  the  acts  that  are  charged  against  the  defend^ 
ants  are  acts  connected  with  driving  vehicles ;  and  the  defendants 
are  a  company  incorporated  for  the  purpose  of  driving  omnibuses/ancT^ 
the retoTcTthe  acts  alleged  to  have  been  done  by  them  are  all  acts  which 
are  within  the  scope  and  object  of  their  formation.  Unless  the  acts 
charged  were  wrongfully  done,  the  plaintiff  of  course  would  have  no 
ground  of  complaint.  We  are  clearly  of  opinion  that  the  action  lies : 
and  there  are  abundant  authorities  to  warrant  that  opinion.  The  whole 
course  of  the  authorities,  from  the  case  of  Yarborough  v.  The  Bank  of 
England,  16  East  6,  down  to  Whitfield  v.  The  South  Eastern  Railway 
Company,  1  Ellis,  Bl.  &  E.  115  (E.  C.  L.  R.  vol.  96),  — which  was  in 
reality  an  action  against  the  Electric  Telegraph  Company,  shows  that 
an  action  for  a  wrong  will  lie  against  a  corporation,  where  the  thing 
that  is  complained  of  is  a  thing  done  within  the  scope  of  their  incor- 
poration, and  is  one  which  would  constitute  an  actionable  wrong  if 
committed  by  an  individual.  The  doctrine  relied  on  by  Mr.  Giffard, 
—  that  a  corporation,  having  no  soul,  cannot  be  actuated  by  a  malicious 
intention,  —  is  more  quaint  than  substantial.  In  coming  to  the  con- 
clusion we  arrive  at,  we  have  no  intention  in  the  smallest  degree  to 
interfere  with  an}'  of  the  decided  cases ;  but,  on  the  contrary,  we  found 
our  judgment  upon  the  numerous  class  of  cases  of  which  Yarborough  v. 
The  Bank  of  England,  — where  there  is  a  most  learned  and  elaborate 
argument  of  Lord  Ellenborough,  going  fully  into  all  the  previous 
authorities,  —  is  by  no  means  the  first,  and  which  afford  abundant 
examples  of  the  application  of  the  principle  we  now  rety  on.  We  may 
add  that  we  dwell  the  less  upon  the  grounds  which  have  been  urged  by 
Mr.  Giffard  against  the  maintenance  of  the  action,  by  reason  of  the 
extreme  mischief  and  inconvenience  which  would  follow  from  our  hold- 
;ng  that  these  companies  incorporated  for  the  purpose  of  carrying  on 
trade  were  exempt  from  liability  for  intentional  acts  of  wrong.  We 
think  it  extremely  important  that_thesc__com panics  should  be  held 
responsible  where  Uieyadmit  the}7  have  intentionally  done  a  wrongful 
act,  and  that  tiiP^e^jvliogL-thfiy  havo  injin'cd--^hiiuld_not^be  driven  to 
seek  a  doubtful  remedy  against  their  officers  or  servants,  who  ma}T  be 
wholly  unablaJft^answeFjbhe  compensatiorTwhich  the  jury  may  award 
to  the  injured ^party!  For  these  reasons,  we  are  of  opinion  that  the 
plaintiff  is  entitlecTto  judgment.  Judgment  for  the  plaintiff. 


GOODSPEED   V.   EAST   H  ADD  AM   BANK.  415 

GOODSPEED  y.  EAST   HADDAM  BANK. 

1853.     22  Connecticut,  530.1 

CHURCH,  C.  J.  This  action  is  based  upon  the  provisions  of  our 
statute,  entitled,  "An  act  to  prevent  vexatious  suits,"  and  is  subject 
to  the  same  general  principles  as  are  actions  on  the  case,  for  malicious 
prosecutions,  at  common  law. 

The  plaintiff  alleges,  that  the  defendants,  the  East  Haddam  Bank,  a 
body  politic  and  corporate,  without  probable  cause,  and  with  a  malicious 
intent,  unjustly  to  vex,  harass,  embarrass,  and  trouble  the  plaintiff, 
commenced,  by  a  writ  of  attachment,  and  prosecuted  against  him,  a 
certain  vexatious  suit  or  action  for  fraudulent  representations,  to  the 
injury  of  said  bank,  and  which  action  resulted  in  a  verdict  and  judgment 
against  the  bank,  and  in  favor  of  the  present  plaintiff. 

On  the  trial  of  this  cause,  by  the  superior  court,  the  defendants 
moved  for  a  nonsuit,  on  the  ground  that  the  plaintiff,  by  his  evidence 
had  failed  to  make  out  a  prima  facie  case ;  which  motion  the  court 
granted,  and  judgment  of  nonsuit  was  entered  against  the  plaintiff, 
which  he  now  moves  to  set  aside. 

The  judgment  of  the  superior  court,  in  granting  the  nonsuit,  as  we 
understand,  was  founded  solely  upon  the  ground,  that  a  corporation 
aggregate  was  not,  by  law,  liable  for  such  a  cause  of  action  as  was  set 
up  by  the  plaintiff,  in  his  declaration ;  at  least,  no  other  ground  of 
nonsuit  or  objection  to  the  plaintiff's  action  has  been  argued  before  us. 
And,  therefore,  irrespective  of  the  evidence  detailed  in  the  motion, 
we  confine  ourselves  to  what  we  suppose  to  be  the  sole  question  in 
the  case. 

We  assume,  that  the  plaintiff  has  sustained  the  damage  he  claims, 
by  reason  of  the  prosecution  of  the  vexatious  suit,  and  the  question  is, 
has  he  a  legal  remedy  against  the  bank  ? 

The  claim  of  the  defendants  is,  that  the  remedy  for  this  injury,  is  to 
be  sought  against  the  directors  of  the  bank,  or  the  individuals,  whoever 
they  might  have  been,  by  whose  agenc}'  the  vexatious  suit  was  prose- 
cuted, and  not  against  the  corporation.  We  think,  that,  to  turn  the 
plaintiff  round,  to  pursue  the  proposed  remedy,  would  be  trifling  with 
him  and  with  his  just  rights,  and  would  be  equivalent  to  declaring  him 
remediless ;  and,  in  this  case,  at  least,  that  there  was  a  wrong  where 
there  is  no  remedy.  It  is  notorious  that,  ordinarily,  the  action  of  bank 
directors  is  private,  —  that  their  records  do  not  disclose  the  names  of 
the  individuals  supporting  or  opposing  any  resolution  or  vote,  and  if 
they  do,  that  the  offending  persons  may  be  irresponsible  and  insolvent. 
The  language  of  Tilghman,  C.  J.,  in  a  case  very  similar  to  the  present, 
in  which  it  was  urged,  that  a  corporation  was  not  liable  for  a  suit,  but 
only  the  individuals  committing  it,  is  applicable  here.  "  This  doctrine," 
he  said,  "was  fallacious  in  principle,  and  mischievous  in  its  conse- 

1  Statement  and  arguments  omitted.  —  ED. 


416  GOODSPEED  V.  EAST  HADDAM  BANK. 

quences,  as  it  tends  to  introduce  actual  wrongs  and  ideal  remedies ; 
for  a  turnpike  company  might  do  great  injur}*,  by  means  of  laborers 
having  no  property  to  answer  damages,"  &c.  4  Serg.  &  Rawle,  16.  To 
the  same  effect  is  the  language  of  Shaw,  C.  J.,  in  the  case  of  Thayer  v. 
Boston,  19  Pick.,  511.  He  says,  "The  court  are  of  opinion,  that  this 
argument,  if  pressed  to  all  its  consequences,  and  made  the  foundation 
of  an  inflexible,  practical  rule,  would  often  lead  to  very  unjust  results." 

Still  more  explicit  is  the  opinion  of  the  court,  in  the  case  of  The  Life 
and  Fire  Insurance  Company  \.  Mechanics'  Fire  Insurance  Company, 
7  Wend.,  31.  There,  as  here,  it  was  contended,  that  the  act  was  un- 
authorized, and  must  therefore  be  considered  as  the  act  of  the  officers 
of  the  company,  and  not  of  the  company  itself.  And  the  court  says, 
"This  would  be  a  most  convenient  distinction  for  corporations  to 
establish :  that  every  violation  of  their  charter  or  assumption  of  un- 
authorized power,  on  the  part  of  their  officers,  although  with  the  full 
knowledge  and  approbation  of  the  directors,  is  to  be  considered  the 
individual  act  of  the  officers,  and  is  not  to  prejudice  the  corporation 
itself.  There  would  be  no  possibilit}'  of  ever  convicting  a  corporation 
of  exceeding  its  powers,  and  thereby  forfeiting  its  charter,  or  incurring 
any  other  penalty,  if  this  principle  could  be  established." 

The  real  nature,  as  well  as  the  law,  of  corporations,  within  the  last 
half  century,  has  been  in  a  progress  of  development,  so  that  it  has 
grown  up,  from  a  few  rules  and  maxims,  into  a  code.  In  the  days  of 
Blackstone,  the  whole  subject  of  corporations,  and  the  laws  affecting 
them,  were  discussed  within  the  compass  of  a  few  pages  ;  now,  volumes 
are  required  for  this  purpose.  These  institutions  have  so  multiplied 
and  extended  within  a  few  3'ears,  that  they  are  connected  with,  and  in 
a  great  degree  influence,  all  the  business  transactions  of  this  country, 
and  give  tone  and  character,  to  some  extent,  to  societ}*  itself.  We  do 
not  complain  of  this ;  but  we  say,  that,  as  new  relations,  from  this 
cause,  are  formed  and  new  interests  created,  legal  principles  of  a 
practical  rather  than  of  a  technical  or  theoretical  character  must  be 
applied. 

And  so,  in  the  course  of  this  progress,  it  has  been.  It  was  said  by 
Lord  Coke,  "that  corporations  had  neither  souls  nor  bodies;"  and 
by  somebody  else,  "  that  they  had  no  moral  sense ;"  and  from  thence, 
or  some  other  equally  insufficient  reason,  it  was  inferred,  and  so  re- 
peatedly adjudged,  that  they  could  not  be  subjected  in  actions  of  trover, 
trespass,  or  disseisin,  and  indeed,  that  the}'  could  not  commit  wrongs, 
nor  be  liable  for  torts,  with  a  few  exceptions,  as  we  shall  see. 

Had  Lord  Coke  lived  in  this  age  and  countiy,  he  would  have  seen, 
that  corporations,  instead  of  being  the  soulless  and  unconscious  beings 
he  supposed,  are  the  great  motive  powers  of  society,  governing  and 
regulating  its  chief  business  affairs ;  that  they  act,  not  only  upon 
pecuniary  concerns ;  but,  as  having  conscience  and  motives,  to  an 
almost  unlimited  extent,  they  are  entrusted  with  the  benevolent  and 
religious  agencies  of  the  day,  and  are  constituted  trustees  and  managers 
of  large  funds  promotive  of  such  objects. 


GOODSPEED  V.  EAST  HADDAM  BAXK.  417 

The  views  of  the  old  lawyers,  regarding  the  real  nature,  power,  and 
responsibilities  of  corporations,  to  a  great  extent,  are  exploded  in 
modern  times,  and  it  is  believed,  that  now,  these  bodies  are  brought 
to  the  same  civil  liabilities  as  natural  persons,  so  far  as  this  can  be 
done  practically,  and  consistently  with  their  respective  charters.  And 
no  good  reason  is  discovered,  why  this  should  not  be  so ;  nor  why  it 
cannot  be  done,  in  a  case  like  this,  without  violating  any  sensible  or 
useful  principle. 

And  although  it  was  truly  said,  and  for  obvious  reasons,  that  corpo- 
rations could  not  be  punished  corporally,  as  traitors  or  felons,  yet  the}' 
may  be,  and  have  often  been,  subjected  to  fines  and  forfeitures,  for 
malfeasance,  and  even  to  the  loss  of  corporate  life,  by  the  revocation  of 
their  charters.  And  now  it  seems  to  be  generally  admitted,  that  the}* 
are  civilly  responsible,  in  their  corporate  capacities,  for  all  torts  which 
work  injury  to  others,  whether  acts  of  omission  or  commission  ;  for 
negligence  merely,  and  for  direct  violence.  Yarborough  v.  Bank  of 
Eng.,  16  East,  6.  Beach  v.  Fulton  Bank,  1  Cowen,  436.  Foster  v. 
Essex  Bank,  17  Mass.,  503.  Riddle  v.  Proprietors  of  Locks  and 
Canals,  7  id.,  187.  Chestnut  Hill  Turnpike  v.  Rutter,  4  Serg.  & 
Rawle,  16.  4  Hammond,  500,  514.  10  Ohio  Rep.,  159.  Dater  v.  Troy 
Turnpike  Co.,  2  Hill,  630.  23  Pick.,  139.  2  Bl.  Com.,  476.  Ang.  & 
Ames,  392.  2  Kent  Com.,  290.  1  Sw.  Dig.,  75.  15  Ohio  Rep.,  476. 
18  id.,  229.  And  indeed,  no  actions  are  now  more  frequent,  in  our 
courts,  than  such  as  are  brought  against  corporations,  for  torts,  either  in 
case  or  trespass.  Hooker  v.  New  Haven  <fe  Northampton  Canal  Co., 
14  Conn.  R.,  146,  and  the  cases  there  cited,  and  man\-  others  since 
reported.  In  a  late  case  in  England,  it  has  been  adjudged,  adversely 
to  former  opinions,  that  an  action  of  assault  and  batteiy  may  be  sus- 
tained against  a  corporation.  Eastern  Counties  Railway  Co.  v.  Brooks, 
2  Eng.  Law  &  Equit}1,  406.  And  it  was  decided  long  ago,  that  a  cor- 
poration was  liable  to  an  action,  for  a  false  return  to  a  writ  of  manda- 
mus, alleged  to  have  been  made  falsely  and  maliciously.  16  East, 
8.  14  Eng.  Com.  Law,  159.  3  Mees.  &  Wels.,  244.  Ang.  &  Ames, 
ch.  10,  sec.  9. 

In  all  the  cases,  wherein  it  has  been  holden,  that  corporations  may 
be  subjected  to  civil  liabilities  for  torts,  the  acts  charged  as  such,  have 
been  the  acts  of  their  constituted  authorities,  either  the  directors,  or 
agents,  or  servants,  employed  b}'  them.  We  do  not  intend  here  to 
discuss  or  decide  the  frequently  suggested  question,  how  far,  or  when 
a  principal,  whether  an  individual  person,  or  a  corporation,  becomes 
responsible  for  the  wilful  or  malicious  act  of  his  servant  or  agent,  as 
distinguished  from  his  mere  negligence,  although  it  has  been  brought 
into  the  argument  of  this  case,  because  we  do  not  admit,  that  the 
present  case  falls  within  the  operation  of  the  rule  of  law  on  this  subject, 
even  as  the  defendants  claim  it. 

The  truth  is,  the  action  complained  of,  as  vexatious,  was  instituted 
by  the  bank,  in  the  name  of  the  bank,  and,  as  should  be  presumed,  in 

27 


418  GOODSPEED   V.   EAST   H  ADD  AM   BANK. 

just  the  same  way  and  by  the  same  agencies  and  means,  as  all  other 
suits  by  these  institutions  are  commenced  and  prosecuted,  and  nothing 
appears  here,  showing  any  different  procedure  than  is  usual,  in  actions 
by  corporations.  The  action  was  brought,  for  the  sole  benefit  of  the 
bank,  for  the  recovery  of  money  to  which  the  bank  was  entitled,  if 
anybody,  and  for  an  injury  sustained  b}'  the  bank,  in  its  corporate 
capacity.  The  bank,  by  its  charter,  and  the  general  laws,  had  power 
to  sue  for  such  a  cause  of  action ;  and  what  seems  to  us  jet  more 
conclusive,  is,  that  if  this  suit  was  originated  by  the  misconduct  of 
directors,  or  any  officer  of  the  company,  it  has  never  been  repudiated, 
and  may,  by  the  acquiescence  of  the  bank,  be  considered  as  sanctioned 
by  it.  Ang.  &  Ames,  ch.  10,  sec.  9.  No  act  of  agency  appears  here, 
which  does  not  appear  in  all  suits  brought  by  corporations,  and  nothing 
to  show,  that  any  individuals  are,  or  ought  to  be,  made  responsible  for 
the  institution  and  prosecution  of  the  groundless  suit,  as  distinct  from 
the  corporation  itself. 

The  doctrine,  that  principals  are  not  responsible  for  the  wilful  mis- 
conduct of  their  agents,  as  seems  to  have  been  sanctioned  in  the  cases 
of  McManus  v.  Cricket,  1  East,  106;  Wright  v.  Wilcox,  19  Wend., 
343  ;  Vanderbilt  v.  Richmond  Turnpike  Co.,  2  Comstock,  470 ;  but 
denied  by  Chief  Justice  Reeve,  in  his  Domestic  Relations,  357,  we  think 
has  never  been  applied  to  such  a  case  as  this,  but  only  to  the  acts  of 
agents  or  servants,  properly  so  called ;  or  such  as  act  under  instruc- 
tions and  a  delegated  authorit}',  —  persons  whose  duty  it  is  to  obey, 
not  to  control ;  as  attorneys,  cashiers,  or  others  employed  by  the  cor- 
poration. The  president  and  directors  of  a  bank,  instead  of  being  mere 
servants,  are  really  the  controlling  power  of  the  corporation,  —  the 
representatives,  standing  and  acting  in  the  place  of  the  interested 
parties.  Indeed,  they  are  the  mind  and  soul  of  the  body  politic  and 
corporate,  and  constitute  its  thinking  and  acting  capacity.  In  the  case 
of  Burrell  v.  The  Nahant  Bank,  2  Met.,  163,  Shaw,  C.  J.,  expresses 
and  defines  the  true  rule  of  appreciating  the  character  and  powers  of 
bank  directors.  He  says:  "We  think  the  exception  takes  much  too 
limited  and  strict  a  view  of  the  powers  of  bank  directors.  A  board  of 
directors  is  a  body  recognized  by  law.  By  the  laws  of  these  corpora- 
tions, and  by  the  usage,  so  general  and  uniform,  as  to  be  regarded  as 
a  part  of  the  law  of  the  land,  they  have  the  general  superintendence 
and  active  management  of  all  the  concerns  of  the  bank,  and  constitute, 
to  all  purposes  of  dealing  with  others,  the  corporation.  We  think  the}' 
do  not  exercise  a  delegated  authorit}1,  in  the  sense  to  which  the  rule 
applies  to  agents  and  attorne3*s,"  &c.  The  same  principle  is  very  dis- 
tinctly recognized,  in  the  cases  of  Hank  Commissioners  v.  Hank  of 
Buffalo^  6  Paige's  Ch.,  502,  and  Life  and  Fire  Ins.  Co.  \.  Mechanics' 
Fire  Ins.  Co.,  1  Wend.,  31.  It  has  been  said,  that  the  stockholders 
constitute  the  corporation.  It  ma}*  be  so,  to  the  extent  to  which  they 
have  the  power  to  act,  —  and  this  is  only  in  the  choice  of  directors, 
and  no  more.  Beyond  this,  they  can  only  be  considered,  as  the  persons 


GOODSPEED   V.   EAST   HADDAM   BANK.  419 

for  whose  ultimate  individual  interests  the  corporation  acts.  The 
directors  derive  all  their  power  and  authority  from  the  charter  and 
laws,  and  none  from  the  stockholders. 

But  the  fear  is  expressed,  that,  by  thus  considering  and  treating  the 
character  and  acts  of  the  directors  of  a  bank  or  other  corporation,  the 
stockholders  are  subject  to  loss,  without  fault  of  their  own.  This  may 
to  some  extent,  be  true  ;  but  the  protection  of  the  law  in  this  matter, 
is  not  to  be  confined  to  stockholders ;  the  public  and  strangers  have 
rights  also.  The  stockholders  are  volunteers,  and  they  have  consented 
to  assume  the  risk  of  the  faithful  or  unfaithful  management  of  the 
corporation.  If,  in  this  case,  one  of  two  innocent  persons  or  classes  is 
to  suffer,  which  should  it  be,  —  that  one  which  is  brought  in  to  suffer 
loss,  without  its  consent  or  power  to  prevent  it,  or  the  one  which  has 
created  the  power  and  selected  the  persons  to  enforce  it? 

But,  after  all,  the  objection  to  the  remedy  of  this  plaintiff  against  the 
bank,  in  its  corporate  capacity,  is  not  so  much,  that,  as  a  corporation, 
it  can  not  be  made  responsible  for  torts  committed  by  its  directors,  as 
that  it  cannot  be  subjected  for  that  species  of  tort,  which  essentially 
consists  in  motive  and  intention.  The  claim  is,  that  as  a  corporation 
is  ideal  only,  it  can  not  act  from  malice,  and  therefore,  can  not  commence 
and  prosecute  a  malicious  or  vexatious  suit.  This  syllogism,  or  rea- 
soning, might  have  been  very  satisfactory  to  the  schoolmen  of  former 
days ;  more  so,  we  think,  than  to  the  jurist  who  seeks  to  discover  a 
reasonable  and  appropriate  remedy  for  every  wrong.  To  say  that  a 
corporation  cannot  have  motives,  and  act  from  motives,  is  to  den}7  the 
evidence  of  our  senses,  when  we  see  them  thus  acting,  and  effecting 
thereby  results  of  the  greatest  importance,  ever}'  day.  And  if  they  can 
have  any  motive,  they  can  have  a  bad  one, — they  can  intend  to  do 
evil,  as  well  as  to  do  good.  If  the  act  done  is  a  corporate  one,  so  must 
the  motive  and  intention  be.  In  the  present  case,  to  say,  that  the 
vexations  suit,  as  it  is  called,  was  instituted,  prosecuted,  and  subse- 
quently sanctioned,  by  the  bank,  in  the  usual  modes  of  its  action ;  and 
still  to  claim,  that,  although  the  acts  were  those  of  the  bank,  the  inten- 
tion was  only  that  of  the  individual  directors,  is  a  distinction  too  refined, 
we  think,  for  practical  application. 

It  is  asked,  how  can  the  malice  of  a  corporation  be  proved  ?  It  must 
be  proved,  it  is  said,  as  well  as  alleged,  in  an  action  for  a  malicious 
prosecution,  as  a  distinct  and  essential  fact ;  and  the  declarations  and 
admissions  of  individual  members,  whether  directors  or  others,  are  not 
admissible  to  prove  it.  True,  malice  must  be  proved,  and,  as  we 
suppose,  very  much  in  the  same  manner  as  it  is  proved  in  other  cases, 
of  a  similar  nature,  against  individual  persons.  The  want  of  probable 
cause  of  action  is  proof  of  malice,  and  for  aught  we  know,  also,  the 
records  of  the  bank  may  show  it.  It  is  enough  to  say,  in  this,  as  in  all 
other  cases,  that  if  the  plaintiff  can  not,  in  some  legitimate  way,  prove 
the  malice  he  has  alleged,  he  can  not  recover ;  but  we  have  no  right  to 
assume  it  as  a  legal  principle,  that  it  can  not  be  proved.  We  do  not 


420  GOODSPEED  V.  EAST  HADDAM  BANK. 

know  that  it  has  ever  been  adjudged,  that  a  corporation  is  civilly 
responsible  for  a  libel.  But,  among  the  great  variety  and  objects  of 
these  institutions,  it  is  probable  that  the  newspaper  press  has  come  in 
for  its  share  of  the  privileges  supposed  to  be  enjoyed  under  corporate 
powers.  Proof  of  the  falsehood  of  slanderous  charges,  is  evidence  of 
malice,  and  which  must,  as  in  this  case,  be  proved.  But,  would  it  be  en- 
dured, that  an  association,  incorporated  for  the  purpose  suggested,  could, 
with  impunity,  assail  the  character  and  break  down  the  peace  and  happi- 
ness of  the  good  and  virtuous,  and  the  law  afford  no  remedy,  except 
by  a  resort  to  insolvent  and  irresponsible  type-setters,  and  for  no  better 
reason,  than  that  a  corporation  is  only  an  ideal  something,  of  which 
malice  or  intention  can  not  be  predicated?  And  if,  as  "we  have  sug- 
gested, the  directors  are,  for  all  practical  purposes,  the  corporation 
itself,  acting,  at  least,  as  its  representatives,  we  can  see  no  greater 
difficulty  in  proving  their  motives  good  or  bad,  than  in  thus  proving 
the  motives  of  other  associated  or  conspiring  bodies.  We  are  sure, 
that  this  objection  of  the  defendants,  was  not  discovered,  or  was  not 
regarded  as  sufficient,  nor  the  difficulty  of  proving  malice  upon  a  cor- 
poration, felt,  when  the  case  of  Merrills  v.  The  Tariff  Manufacturing 
Co.,  10  Conn.  R.,  384,  was  tried  at  the  circuit,  and  discussed  and 
decided  b}T  this  court.  That  was  an  action  against  a  corporation, 
for  a  malicious  injury,  and  the  sole  question  in  this  court  was, 
whether,  by  reason  of  the  malicious  intent,  the  company  was  liable 
for  aggravated  or  vindictive  damages  ;  and  it  was  holden  to  be  thus 
liable,  in  a  very  elaborate  opinion,  drawn  up,  and  strongly  expressed, 
by  Huntington,  J. 

The  interests  of  the  community,  and  the  policy  of  the  law  demand 
that  corporations  should  be  divested  of  every  feature  of  a  fictitious 
character,  which  shall  exempt  them  from  the  ordinary  liabilities  of 
natural  persons,  for  acts  and  injuries  committed  by  them  and  for  them. 
Their  immunities  for  wrongs  are  no  greater  than  can  be  claimed  by 
others,  and  they  are  entitled  to  an  equal  protection,  for  all  their  rights 
and  privileges,  and  no  more. 

For  the  reasons  suggested,  a  majority  of  the  court  is  of  opinion,  that 
the  nonsuit  granted  by  the  superior  court,  should  be  set  aside,  and  a 
new  trial  granted. 

In  this  opinion,  WAITE,  J.,  concurred. 

ELLSWORTH,  J.  I  do  not  feel  quite  satisfied,  that  the  plaintiff  can 
recover  against  the  defendants,  for  a  malicious  suit  brought,  in  fact, 
by  the  directors  of  the  bank.  Certainly,  no  such  action  has  been  found 
in  the  books,  though  I  admit  there  are  analogous  cases  which  show, 
that  courts  have  gone  veiy  far  in  subjecting  corporations  for  wrongs, 
by /their  agents,  but  I  think  there  are  none,  going  to  the  extent  now 
claimed. 

An  indispensable  requisite,  in  an  action  for  a  malicious  suit,  is  malice, 
—  malice  in  fact, — a  wicked  criminal  purpose.  An  unsuccessful  suit 
is  not  sufficient.  It  must  have  originated  in  malice  ;  and  this  idea  of 


GOODSPEED   V.   EAST   HADDAM   BANK.  421 

actual,  as  contradistinguished  from  legal,  malice,  is,  in  my  judgment, 
deserving  of  the  highest  consideration.  It  gives  character  to  the 
action.  The  language  of  Greenleaf,  2  Greenl.  Ev.,  367,  is,  "To  sustain 
this  averment,  (malice,)  the  charge  must  be  shown  to  have  been  wilfully 
false.  Now  I  ask,  in  view  of  this  essential  requisite,  if  any  such  mali- 
cious intent  can  be  said  to  belong  to  a  body  of  stockholders,  (the 
corporation,)  whose  affairs  are  conducted  by  their  agents,  under  the 
provisions  of  the  charter  of  the  company,  and  who,  themselves,  are  in 
no  way  or  manner  really  implicated  in  the  supposed  malicious  intent? 
Again,  I  ask,  whose  malice  is  the  ground  of  the  action?  not  the  malice 
of  the  president  and  cashier,  —  not  that  of  the  directors ;  this  is  not 
even  admissible  in  proof  against  the  company.  Whose  malice  then? 
certainly  not  that  of  the  ideal  corporation  ;  for  this  is  a  mere  fictitious 
entity,  and  can  not  entertain  malice.  It  must  never  be  forgotten,  that 
malice,  as  already  said,  is  the  very  ground  and  gist  of  the  action,  and 
no  case  has  been  read  to  us,  of  a  recovery  against  a  corporation,  where 
there  was  not  a  perfect  cause  of  action,  independent  of  any  malicious 
intention.  Doubtless  the  directors  ma}-  be  guilt}-  of  malice,  and  of  a 
malicious  injury ;  but  to  proceed  further,  and  subject  stockholders,  for 
their  malice,  is  quite  another  question. 

It  is  likewise  to  be  kept  in  mind,  that  this  action  does  not  belong 
to  that  class  of  actions  against  corporations,  or  other  principals,  for 
injuries  sustained,  through  a  false  confidence  reposed  by  strangers  in  the 
supposed  authority  of  agents.  This  action  is  for  an  original  unauthor- 
ized wrong  of  the  directors,  and  is  in  no  way  the  result  of  an}-  false 
confidence.  It  is  a  mere  malicious  contest  between  the  directors  them- 
selves. The  stockholders  may  well  say  :  We  can  not  be  involved  in  this 
malicious  contest.  We  entertain  no  malice  against  Mr.  Goodspeed,  and 
no  one  can  entertain  it  for  us. 

I  think  it  has  been  incorrectly  assumed,  by  counsel,  that  the  malicious 
suit  was  brought  by  the  East  Haddam  Bank.  It  was,  in  fact,  brought 
by  the  major  vote  of  the  directors.  They  made  use  of  the  company 
name,  for  their  own  malicious  purpose,  while  they  were  only  intrusted 
with  the  powers  delegated,  for  a  lawful  and  laudable  purpose.  The 
company  do  not  at  all  admit,  that  they  are  represented  in  this  instance, 
—  no  more  than  the}-  would,  had  the  directors  voted  that  the  cashier 
should  inflict  personal  chastisement  upon  Mr.  Goodspeed,  wherever  he 
could  find  him. 

But  if  this  objection  is  unsound  and  capable  of  being  surmounted, 
there  is  still  another,  by  no  means  to  be  overlooked.  The  act  of  the 
defendants  is  conceded  to  be  wilful  and  designed ;  indeed,  this  is  the 
very  ground  of  the  action  —  a  malicious  wrong.  No  principle  of  law 
is  better  settled,  than  that  the  principal  is  not  liable  for  the  intentional 
torts  of  the  agent.  For  his  negligence  he  is  liable,  but  nothing  more. 
To  go  beyond  this,  and  make  him  liable  for  criminal  conduct,  though 
in  a  civil  form,  would  jeopardize  the  safety  of  all  employers,  whether 
corporations  or  others,  or  would  prevent  the  employment  of  all  agents, 


422  GOODSPEED  V.  EAST  HADDAM  BANK. 

because  of  the  great  responsibility.  It  may  be  politic,  to  hold  principals 
to  greater  carefulness  on  the  part  of  their  agents,  or  servants,  but  this 
is  all  that  has  hitherto  been  found  expedient  or  necessary.  If  now  this 
admitted  rule  of  law,  as  a  general  rule,  is  to  be  applied  to  this  case,  it 
puts  an  end  to  the  controversy  at  once ;  for  a  more  palpable  or  wilful 
•wrong,  or  tortious  act,  cannot  be  imagined,  than  the  officers  of  a  bank 
maliciously  and  without  cause,  using  the  corporate  name  to  oppress  or 
destro}"  a  fellow-director.  Of  course,  I  do  not  say  this  is  so,  in  this  in- 
stance ;  but  the  plaintiff  makes  this  assumption,  in  order  to  recover  on 
this  declaration.  That  the  above  principle  of  law  is  applicable  to  cor- 
porations, as  well  as  to  other  principals,  who  employ  agents,  is  most 
learnedly  argued  and  fully  decided  in  the  court  of  appeals  of  the  state 
of  New  York.  Vanderbilt  v.  The  Richmond  Turnpike  Co.,  2  Com., 
481,  which  was  the  case  of  an  intentional  collision  of  steamboats  in  the 
harbor  of  New  York. 

Suppose,  in  the  late  catastrophe  at  Norwalk,  the  engineer  had 
designedly  run  the  train  into  the  creek,  to  sink  a  steamboat  passing 
underneath  ;  would  the  company  have  been  liable  to  the  owners  of  the 
steamboat?  True,  they  would  have  been  liable  to  the  passengers  in 
the  cars,  because  the}"  undertook  to  carry  them  safely  to  the  end  of  the 
route;  but  there  is  no  such  undertaking,  as  to  strangers.  Suppose  the 
engineer  had  intentionally  run  over  a  man  on  the  road,  to  break  his 
bones ;  would  the  company  be  liable  ?  Suppose  the  president  and 
directors  had  themselves  conducted  the  engine  with  the  same  intention, 
and  had  done  the  same  injury,  would  the  company  be  liable?  Is  a 
town  liable  for  a  malicious  suit  by  its  selectmen  ?  or  a  savings  bank, 
for  the  malicious  conduct  of  its  trustees?  I  answer,  in  all  these 
cases,  no. 

It  is  asked,  will  3-011  not  hold  corporations  to  the  same  rule  of  justice 
and  law,  as  you  do  all  others  ?  I  answer,  yes,  where  the  cases  are 
parallel.  Now,  this  interrogatory  assumes  two  things,  which  are  not 
entirely  clear  or  conceded,  viz.,  that  j'ou  can  pass  by  the  only  actual 
malice  in  the  case,  and  assume  malice  in  the  stockholders,  or  corpora- 
tion, who  are  avowedly  ignorant  and  innocent;  and  further,  that  the 
principal  is  liable  for  the  wilful  wrongs  perpetrated  by  his  agent.  Now, 
I  go  for  the  same  rule  to  all,  and  therefore,  I  hold,  that  those  who,  in 
fact,  do  the  wrong,  must  answer  for  it.  If  a  different  view  of  the  case 
is  taken,  and  corporations  are  held  liable  for  the  malicious  acts  of  the 
directors,  and  other  inferior  agents,  I  insist,  that  a  different  rule  is 
made  to  apply  to  them  from  others,  and  that  the  property  of  stock- 
holders, vested  under  the  exact  limits  and  provisions  of  the  charter, 
will  be  subjected  to  very  great  and  alarming  hazards. 

These  are,  briefly,  my  views,  expressed  with  no  little  distrust,  since 
some  of  my  brethren  feel  well  satisfied  the  plaintiff  is  entitled  to 
recover. 

In  this  opinion,  HINMAN,  J.,  concurred.  STORRS,  J.,  having  tried  the 
cause  in  the  court  below,  was  disqualified. 

Nonsuit  set  aside,  and  new  trial  to  be  granted. 


LAKE  SHORE,  ETC.  R.  CO.  V.  PRENTICE.          423 


LAKE  SHORE,  &c.  R.  CO.  v.  PRENTICE. 

1893.     147  U.  S.  101.1 

ERROR  to  the  U.  S.  Circuit  Court  for  the  Northern  District  of  Illinois. 

Action  of  trespass  on  the  case,  by  Prentice  against  the  Railway 
Company,  for  the  unlawful  arrest  of  the  plaintiff,  by  order  of  the  con- 
ductor of  the  train  upon  which  plaintiff  was  a  passenger. 

At  the  trial,  and  before  the  introduction  of  any  evidence,  the  defend- 
ant admitted  that  the  arrest  of  the  plaintiff  was  wrongful,  and  that  he 
was  entitled  to  recover  actual  damages  therefor.  The  evidence  tended 
to  prove  that  the  arrest  was  publicly  made,  and  in  a  manner  especially 
insulting  and  humiliating  to  the  plaintiff. 

The  Circuit  Judge  instructed  the  jury  as  to  damages  (in  part)  as 
follows :  — 

If  the  company,  without  reason,  by  its  unlawful  and  oppressive  act, 
subjected  him  to  this  public  humiliation,  and  thereby  outraged  his  feel- 
ings, he  is  entitled  to  compensation  for  that  injurj"  and  mental  anguish. 

"I  am  not  able  to  give  you  any  rule  by  which  3-011  can  determine 
that;  but  bear  in  mind,  it  is  strictly  on  the  line  of  compensation.  The 
plaintiff  is  entitled  to  compensation  in  money  for  humiliation  of  feeling 
and  spirit,  as  well  as  the  actual  outlay  which  he  has  made  in  and  about 
this  suit. 

"And,  further,  after  agreeing  upon  the  amount  which  will  fairly 
compensate  the  plaintiff  for  his  outlay  and  injured  feelings,  you  may 
add  something  by  way  of  punitive  damages  against  the  defendant, 
which  is  sometimes  called  smart  money,  if  yon  are  satisfied  that  the 
conductor's  conduct  was  illegal  (and  it  was  illegal),  wanton  and  oppres- 
sive. How  much  that  shall  be  the  court  cannot  tell  you.  You  must 
act  as  reasonable  men,  and  not  indulge  vindictive  feelings  towards  the 
defendant. 

"If a  public  corporation,  like  an  individual,  acts  oppressively,  wan- 
tonty,  abuses  power,  and  a  citizen  in  that  waj'  is  injured,  the  citizen, 
in  addition  to  strict  compensation,  may  have,  the  law  says,  something 
in  the  way  of  smart  money ;  something  as  punishment  for  the  oppres- 
sive use  of  power." 

The  jury  returned  a  verdict  for  the  plaintiff  in  the  sum  of  $10,000. 
The  defendant  moved  for  a  new  trial,  for  error  in  law,  and  for  excessive 
damages.  The  plaintiff  thereupon,  by  leave  of  court,  remitted  the  sum 
of  $4000,  and  asked  that  judgment  be  entered  for  $6000.  The  court 
then  denied  the  motion  for  a  new  trial,  and  gave  judgment  for  the 
plaintiff  for  $6000.  The  defendant  sued  out  this  writ  of  error. 

George  C,  Greene,  for  plaintiff  in  error. 

W.  A.  Foster,  for  defendant  in  error. 

1  Statement  abridged.    Arguments  and  part  of  opinion  omitted.  —  ED. 


424  LAKE   SHORE,   ETC.   R.   CO.   V.   PRENTICE. 

GKAY,  J.  The  only  exceptions  taken  to  the  instructions  at  the  trial, 
which  have  been  argued  in  this  court,  are  to  those  on  the  subject  of 
punitive  damages. 

The  single  question  presented  for  our  decision,  therefore,  is  whether 
a  railroad  corporation  can  be  charged  with  punitive  or  exemplary  dam- 
ages for  the  illegal,  wanton  and  oppressive  conduct  of  a  conductor  of 
one  of  its  trains  towards  a  passenger. 

This  question,  like  others  affecting  the  liability  of  a  railroad  corpora- 
tion as  a  common  carrier  of  goods  or  passengers  —  such  as  its  right  to 
contract  for  exemption  from  responsibility  for  its  own  negligence,  or 
its  liability  beyond  its  own  line,  or  its  liability  to  one  of  its  servants 
for  the  act  of  another  person  in  its  employment  —  is  a  question,  not  of 
local  law,  but  of  general  jurisprudence,  upon  which  this  court,  in  the 
absence  of  express  statute  regulating  the  subject,  will  exercise  its  own 
judgment,  uncontrolled  by  the  decisions  of  the  courts  of  the  several 
States.  Railroad  Co.  v.  LocJcwood,  17  Wall.  357,  368  ;  Liverpool 
Steam  Co.  v.  Phenix  Ins.  Co.,  129  U.  S.  397,  443  ;  Myrick  v.  Michi- 
gan Central  Railroad,  107  U.  S.  102,  109  ;  Hough  v.  Railway  Co., 
100  U.  S.  213,  226. 

The  most  distinct  suggestion  of  the  doctrine  of  exemplary  or  punitive 
damages  in  England  before  the  American  Revolution  is  to  be  found  in 
the  remarks  of  Chief  Justice  Pratt  (afterwards  Lord  Catnden)  in  one  of 
the  actions  against  the  King's  messengers  for  trespass  and  imprison- 
ment under  general  warrants  of  the  Secretary  of  State,  in  which,  the 
plaintiffs  counsel  having  asserted,  and  the  defendant's  counsel  having 
denied,  the  right  to  recover  "exemplary  damages,"  the  Chief  Justice 
instructed  the  jury  as  follows :  '  '  I  have  formerly  delivered  it  as  my 
opinion  on  another  occasion,  and  I  still  continue  of  the  same  mind, 
that  a  jury  have  it  in  their  power  to  give  damages  for  more  than  the 
injury  received.  Damages  are  designed  not  only  as  a  satisfaction  to 
the  injured  person,  but  likewise  as  a  punishment  to  the  guilty,  to  deter 
from  any  such  proceeding  for  the  future,  and  as  a  proof  of  the  detesta- 
tion of  the  jury  to  the  action  itself."  Wilkes  v.  Wood,  Lofft,  1,  18, 
19;  S.  C.  19  Howell's  State  Trials,  1153,  1167.  See  also  Huckle  v. 
Money,  2  Wilson,  205,  207;  8.  C.,  Sayer  on  Damages,  218,  221. 
The  recovery  of  damages,  beyond  compensation  for  the  injury  received, 
by  way  of  punishing  the  guilty,  and  as  an  example  to  deter  others 
from  offending  in  like  manner,  is  here  clearly  recognized. 

In  this  court,  the  doctrine  is  well  settled,  that  in  actions  of  tort  the 
jui\y,  in  addition  to  the  sum  awarded  by  way  of  compensation  for  the 
plaintiff's  injury,  may  award  exemplar}*,  punitive  or  vindictive  dam- 
ages, sometimes  called  smart  money,  if  the  defendant  has  acted  wan- 
tonly, or  oppressively,  or  with  such  malice  as  implies  a  spirit  of 
mischief  or  criminal  indifference  to  civil  obligations.  But  such  guilty 
intention  on  the  part  of  the  defendant  is  required  in  order  to  charge 
him  with  exemplary  or  punitive  damages.  The  Amiable  Nancy,  3 
Wheat.  546,  558,  559  ;  Day  v.  Woodworth,  13  How.  363,  371 ;  Phila- 


LAKE   SHORE,   ETC.   R.   CO.   V,   PRENTICE.  425 

delphia  &c.  Railroad  v.  Quigley,  21  How.  202,  213,  214;  Mil- 
waukee <&  St.  Paul  Railway  v.  Arms,  91  U.  S.  489,  493,  495 ; 
Missouri  Pacific  Railway  v.  Humes,  115  U.  S.  512,  521 ;  J3arry  v. 
Edmunds,  116  U.  S.  550,  562,  563  ;  Denver  &  Rio  Grande  Railicay 
v.  Harris,  122  U.  S.  597,  609,  610 ;  Minneapolis  &  St.  Louis  Rail- 
way v.  Eeckwith,  129  U.  S.  26,  36. 

Exemplary  or  punitive  damages,  being  awarded,  not  by  way  of  com- 
pensation to  the  sufferer,  but  by  way  of  punishment  of  the  offender,  and 
as  a  warning  to  others,  can  only  be  awarded  against  one  who  has  par- 
ticipated in  the  offence.  A  principal,  therefore,  though  of  course  lia- 
ble to  make  compensation  for  injuries  done  b}-  his  agent  within  the 
scope  of  his  employment,  cannot  be  held  liable  for  exemplary  or  puni- 
tive damages,  merely  by  reason  of  wanton,  oppressive  or  malicious 
intent  on  the  part  of  the  agent.  This  is  clearly  shown  by  the  judgment 
of  this  court  in  the  case  of  The  Amiable  Nancy,  3  Wheat.  546. 

In  that  case,  upon  a  libel  in  admiralty  by  the  owner,  master,  super- 
cargo and  crew  of  a  neutral  vessel  against  the  owners  of  an  American 
privateer,  for  illegally  and  wantonly  seizing  and  plundering  the  neutral 
vessel  and  maltreating  her  officers  and  crew,  Mr.  Justice  Story,  speak- 
ing for  the  court,  in  1818,  laid  down  the  general  rule  as  to  the  liabilit}' 
for  exemplary  or  vindictive  damages  by  wa}*  of  punishment,  as  follows : 
"  Upon  the  facts  disclosed  in  the  evidence  this  must  be  pronounced  a 
case  of  gross  and  wanton  outrage,  without  an}*  just  provocation  or 
excuse.  Under  such  circumstances,  the  honor  of  the  countiy  and  the 
dut}'  of  the  court  equalty  require  that  a  just  compensation  should  be 
made  to  the  unoffending  neutrals,  for  all  the  injuries  and  losses  actually 
sustained  by  them.  And  if  this  were  a  suit  against  the  original  wrong- 
doers, it  might  be  proper  to  go  yet  farther,  and  visit  upon  them,  in  the 
shape  of  exemplary  damages,  the  proper  punishment  which  belongs  to 
such  lawless  misconduct.  But  it  is  to  be  considered  that  this  is  a  suit 
against  the  owners  of  the  privateer,  upon  whom  the  law  has,  from  mo- 
tives of  policy,  devolved  a  responsibilit}*  for  the  conduct  of  the  officers 
and  crew  employed  b}-  them,  and  }~et,  from  the  nature  of  the  service, 
they  can  scarcely  ever  be  able  to  secure  to  themselves  an  adequate 
indemnity  in  cases  of  loss.  They  are  innocent  of  the  demerit  of  this 
transaction,  having  neither  directed  it,  nor  countenanced  it,  nor  parti- 
cipated in  it  in  the  slightest  degree.  Under  s.uch  circumstances,  we 
are  of  the  opinion  that  they  are  bound  to  repair  all  the  real  injuries  and 
personal  wrongs  sustained  b}*  the  libellants,  but  they  are  not  bound  to 
the  extent  of  vindictive  damages."  3  Wheat.  558,  559. 

The  rule  thus  laid  down  is  not  peculiar  to  courts  of  admiralty ;  for, 
as  stated  by  the  same  eminent  judge  two  }-ears  later,  those  courts  pro- 
ceed, in  cases  of  tort,  upon  the  same  principles  as  courts  of  common 
law,  in  allowing  exemplary  damages,  as  well  as  damages  by  way  of 
compensation  or  remuneration  for  expenses  incurred,  or  injuries  or 
losses  sustained,  by  the  misconduct  of  the  other  party.  Boston 
Manuf.  Co.  v.  Fiske,  2  Mason,  119,  121.  In  Keene  \.  Lizardi,  8 


426          LAKE  SHOEE,  ETC.  R.  CO.  V.  PRENTICE. 

Louisiana,  26,  33,  Judge  Martin  said:  "  It  is  true,  juries  sometimes 
very  properly  give  what  is  called  smart  money.  They  are  often  war- 
ranted in  giving  vindictive  damages  as  a  punishment  inflicted  for  out- 
rageous conduct.  But  this  is  only  justifiable  in  an  action  against  the 
wrongdoer,  and  not  against  persons  who,  on  account  of  their  relation 
to  the  offender,  are  only  consequentially  liable  for  his  acts,  as  the  prin- 
cipal is  responsible  for  the  acts  of  his  factor  or  agent."  To  the  same 
effect  are  :  The  State  Eights,  Crabbe,  22,  47,  48 ;  The  Golden  Gate, 
McAllister,  104;  Wardrobe  \.  California  Stage  Co.,  7  California, 
118;  Boulardv.  Calhoun,  13  La.  Ann.  445;  Detroit  Post  v.  Me  Ar- 
thur, 16  Michigan,  447;  Grund  v.  Van  VlecJc,  69  Illinois,  478,  481  ; 
Becker  v.  Dupree,  75  Illinois,  167;  Rosenkrans  v.  Barker,  115 
Illinois,  331  ;  Kirksey  v.  Jones,  1  Alabama,  622,  629  ;  Pollock  v. 
Gantt,  69  Alabama,  373,  379  ;  Eviston  v.  Cramer,  57  Wisconsin, 
570 ;  Haines  v.  Schidtz,  21  Vroom,  (50  N.  J.  Law,)  481;  McCarty  v. 
De  Armit,  99  Penn.  St.  63,  72;  Clark  v.  Newsam,  1  Exch.  131, 
140  ;  Clissold  v.  Machell,  26  Upper  Canada  Q.  B.  422. 

The  rule  has  the  same  application  to  corporations  as  to  individuals. 
This  court  has  often,  in  cases  of  this  class,  as  well  as  in  other  cases, 
affirmed  the  doctrine  that  for  acts  done  by  the  agents  of  a  corporation, 
in  the  course  of  its  business  and  of  their  employment,  the  corporation 
is  responsible,  in  the  same  manner  and  to  the  same  extent,  as  an  indi- 
vidual is  responsible  under  similar  circumstances.  Philadelphia  &c. 
Railroad  v.  Quigley,  21  How.  202,  210;  National  Bank  v.  Graham, 
100  U.  S.  699,  702  ;  Salt  Lake  City  v.  Hollister,  118  U.  S,  256,  261 ; 
Denver  &  Rio  Grande  Railway  v.  Harris,  122  U.  S.  597,  608. 

A  corporation  is  doubtless  liable,  like  an  individual,  to  make  com- 
pensation for  any  tort  committed  by  an  agent  in  the  course  of  his 
employment,  although  the  act  is  done  wantonly  and  recklessly,  or 
against  the  express  orders  of  the  principal.  Philadelphia  &  Reading 
Railroad  v.  Derby,  14  How.  468  ;  New  Jersey  Steamboat  Co.  v. 
Brockett,  121  U.  S.  637  ;  Howe  v.  Newmarch,  12  Allen,  49  ;  Ramsden 
v.  Boston  &  Albany  Railroad,  104  Mass.  117.  A  corporation  may 
even  be  held  liable  for  a  libel,  or  a  malicious  prosecution,  by  its  agent 
within  the  scope  of  his  employment ;  and  the  malice  necessary  to  sup- 
port either  action,  if  proved  in  the  agent,  may  be  imputed  to  the  cor- 
poration. Philadelphia  &c.  Railroad  v.  Quigley,  21  How.  202,  211  ; 
Salt  Lake  City  v.  Hollister,  118  U.  S.  256,  262;  Reedv.  Home  Sav- 
ings Bank,  130  Mass.  443,  445,  and  cases  cited;  Krulevitz v.  Eastern 
Railroad,  140  Mass.  573;  McDermott  v.  Evening  Journal,  14  Vroom, 
(43  N.  J.  Law),  488  and  15  Vroom,  (44  N.  J.  Law,)  430;  Bank  of 
New  South  Wales  v.  Oteston,  4  App.  Gas.  270.  But,  as  well  observed 
by  Mr.  Justice  Field,  now  Chief  Justice  of  Massachusetts:  "The 
logical  difficulty  of  imputing  the  actual  malice  or  fraud  of  an  agent  to 
his  principal  is  perhaps  less  when  the  principal  is  a  person  than  when 
it  is  a  corporation  ;  still  the  foundation  of  the  imputation  is  not  that  it 
is  inferred  that  the  principal  actually  participated  in  the  malice  or 


LAKE  SHORE,  ETC.  R.  CO.  V.  PRENTICE.          427 

fraud,  but,  the  act  having  been  done  for  his  benefit  by  his  agent  acting 
within  the  scope  of  his  employment  in  his  business,  it  is  just  that  he 
should  be  held  responsible  for  it  in  damages."  Lothrop  v.  Adams, 
133  Mass.  471,  480,  481. 

Though  the  principal  is  liable  to  make  compensation  for  a  libel  pub- 
lished or  a  malicious  prosecution  instituted  by  his  agent,  he  is  not  lia- 
ble to  be  punished  by  exemplary  damages  for  an  intent  in  which  he  did 
not  participate.  In  Detroit  Post  \.McArthur,  i\\Eviston\.  Cramer, 
and  in  Haines  v.  Schultz,  above  cited,  it  was  held  that  the  publisher 
of  a  newspaper,  when  sued  for  a  libel  published  therein  by  one  of  his 
reporters  without  his  knowledge,  was  liable  for  compensatory  damages 
only,  and  not  for  punitive  damages,  unless  he  approved  or  ratified  the 
publication;  and  in  Haines  v.  Schultz  the  Supreme  Court  of  New 
Jersey  said  of  punitive  damages :  "  The  right  to  award  them  rests 
primarily  upon  the  single  ground  —  wrongful  motive."  "It  is  the 
wrongful  personal  intention  to  injure  that  calls  forth  the  penalty.  To 
this  wrongful  intent  knowledge  is  an  essential  prerequisite."  "  Ab- 
sence of  all  proof  bearing  on  the  essential  question,  to  wit,  defendant's 
motive  —  cannot  be  permitted  to  take  the  place  of  evidence,  without 
leading  to  a  most  dangerous  extension  of  the  doctrine  respondeat 
superior."  21  Vroom,  (50  N.  J.  Law,)  484,  485.  Whether  a  princi- 
pal can  be  criminally  prosecuted  for  a  libel  published  by  his  agent 
without  his  participation  is  a  question  on  which  the  authorities  are  not 
agreed;  and  where  it  has  been  held  that  he  can,  it  is  admitted  to  be 
an  anomaly  in  the  criminal  law.  Commonwealth  v.  Morgan,  107 
Mass.  199,  203;  Regina  v.  Holbrook,  3  Q.  B.  D.  60,  63,  64,  70,  and 
4Q.  B.  D.  42,  51,  60. 

No  doubt,  a  corporation,  like  a  natural  person,  ma}'  be  held  liable  in 
exemplar}-  or  punitive  damages  for  the  act  of  an  agent  within  the  scope 
of  his  employment,  provided  the  criminal  intent,  necessary  to  warrant 
the  imposition  of  such  damages,  is  brought  home  to  the  corporation. 
Philadelphia  <&c.  Railroad  v.  Quigley,  Mihcaukee  &  St.  Paul  Rail- 
way v.  Arms,  and  Denver  &  Rio  Grande  Railicay  v.  Harris,  above 
cited  ;  Caldwett  v.  New  Jersey  Steamboat  Co.,  47  N.  Y.  282 ;  Bell  v. 
Midland  Railway,  10  C.  B.  (N.  S.)  287 ;  S.  C.  4  Law  Times  (N.  S.) 
293. 

Independent!}*  of  this,  in  the  case  of  a  corporation,  as  of  an  indivi- 
dual, if  any  wantonness  or  mischief  on  the  part  of  the  agent,  acting 
within  the  scope  of  his  employment,  causes  additional  injury  to  the 
plaintiff  in  bod}'  or  mind,  the  principal  is,  of  course,  liable  to  make 
compensation  for  the  whole  injury  suffered.  JTennon  v.  Gilmer,  131 
U.  S.  22;  Meagher  v.  Driscoll,  99  Mass.  281,  285;  Smith  v.  Hoi- 
comb,  99  Mass.  552;  Hawes  v.  Knowles,  114  Mass.  518;  Campbell 
v.  Pullman  Car  Co.,  42  Fed.  Rep.  484. 

In  the  case  at  bar,  the  defendant's  counsel  having  admitted  in  open 
court  "  that  the  arrest  of  the  plaintiff  was  wrongful,  and  that  he  was 
entitled  to  recover  actual  damages  therefor,  the  jury  were  rightly  in- 


428          LAKE  SHORE,  ETC.  R.  CO.  V.  PRENTICE. 

structed  that  he  was  entitled  to  a  verdict  which  would  full}'  compensate 
him  for  the  injuries  sustained,  and  that  in  compensating  him  the  jury 
were  authorized  to  go  beyond  his  outlay  in  and  about  this  suit,  and  to 
consider  the  humiliation  and  outrage  to  which  he  had  been  subjected  by 
arresting  him  publicly  without  warrant  and  without  cause,  and  by  the 
conduct  of  the  conductor,  such  as  his  remark  to  the  plaintiff's  wife. 

But  the  court,  going  beyond  this,  distinctly  instructed  the  jury  that 
"  after  agreeing  upon  the  amount  which  will  full}'  compensate  the  plain- 
tiff for  his  outlay  and  injured  feelings,"  the}'  might  "  add  something 
by  way  of  punitive  damages  against  the  defendant,  which  is  sometimes 
called  smart  money,"  if  they  were  "  satisfied  that  the  conductor's  con- 
duct was  illegal,  wanton  and  oppressive." 

The  jury  were  thus  told,  in  the  plainest  terms,  that  the  corporation 
was  responsible  in  punitive  damages  for  wantonness  and  oppression  on 
the  part  of  the  conductor,  although  not  actually  participated  in  by  the 
corporation.  This  ruling  appears  to  us  to  be  inconsistent  with  the 
principles  above  stated,  unsupported  by  any  decision  of  this  court,  and 
opposed  to  the  preponderance  of  well  considered  precedents. 

[The  learned  Judge  then  stated,  and  quoted  from  R.  Co.  v.  Derby, 
14  Howard,  470,  471 ;  R.  Co.  v.  Quigley,  21  Howard,  210,  213,  214; 
and  E.  Co.  v.  Arms,  91  U.  S.  495.] 

In  Denver  &  Rio  Grande  Railway  v.  Harris,  the  railroad  com- 
pany, as  the  record  showed,  by  an  armed  force  of  several  hundred  men, 
acting  as  its  agents  and  employes,  and  organized  and  commanded  by 
its  vice-president  and  assistant  general  manager,  attacked  with  deadly 
weapons  the  agents  and  employes  of  another  company  in  possession  of 
a  railroad,  and  forcibly  drove  them  out,  and  in  so  doing  fired  upon  and 
injured  one  of  them,  who  thereupon  brought  an  action  against  the  cor- 
poration, and  recovered  a  verdict  and  judgment  under  an  instruction 
that  the  jury  u  were  not  limited  to  compensatory  damages,  but  could 
give  punitive  or  exemplary  damages,  if  it  was  found  that  the  defendant 
acted  with  bad  intent,  and  in  pursuance  of  an  unlawful  purpose  to  forc- 
ibly take  possession  of  the  railway  occupied  by  the  other  company, 
and  in  so  doing  shot  the  plaintiff."  This  court,  speaking  by  Mr.  Jus- 
tice Harlan,  quoted  and  approved  the  rules  laid  down  in  Quigley's 
case,  and  affirmed  the  judgment,  not  because  any  evil  intent  on  the 
part  of  the  agents  of  the  defendant  corporation  could  of  itself  make  the 
corporation  responsible  for  exemplary  or  punitive  damages,  but  upon 
the  single  ground  that  the  evidence  clearly  showed  that  the  corporation, 
by  its  governing  officers,  participated  in  and  directed  all  that  was 
planned  and  done.  122  U.  S.  610. 

The  president  and  general  manager,  or,  in  his  absence,  the  vice- 
president  in  his  place,  actually  wielding  the  whole  executive  power  of 
the  corporation,  may  well  be  treated  as  so  far  representing  the  corpora- 
tion and  identified  with  it,  that  any  wanton,  malicious  or  oppressive 
intent  of  his,  in  doing  wrongful  acts  in  behalf  of  the  corporation  to  the 
injury  of  others,  may  be  treated  as  the  intent  of  the  corporation  itself. 


LAKE  SHORE,  ETC.  R.  CO.  V.  PRENTICE.          429 

But  the  conductor  of  a  train,  or  other  subordinate  agent  or  servant  of 
a  railroad  corporation,  occupies  a  very  different  position,  and  is  no 
more  identified  with  his  principal,  so  as  to  affect  the  latter  with  his 
own  unlawful  and  criminal  intent,  than  any  agent  or  servant  standing 
in  a  corresponding  relation  to  natural  persons  carrying  on  a  manufac- 
tory, a  mine,  or  a  house  of  trade  or  commerce. 

[The  learned  Judge  here  stated,  and  quoted  from  Hagan\.  R.  Co., 
3  R.  I.  88,  91 ;  and  also  stated  Cleghorn  v.  R.  Co.,  56  N.  Y.  44.  He 
then  proceeds  to  quote  from  the  opinion  in  the  latter  case  as  follows  :  — ] 

Chief  Justice  Church,  delivering  the  unanimous  judgment  of  the 
court,  stated  the  rule  as  follows:  "For  injuries  by  the  negligence  of  a 
servant  while  engaged  in  the  business  of  the  master,  within  the  scope 
of  his  employment,  the  latter  is  liable  for  compensator}*  damages ;  but 
for  such  negligence,  however  gross  or  culpable,  he  is  not  liable  to  be 
punished  in  punitive  damages  unless  he  is  also  chargeable  with  gross 
misconduct.  Such  misconduct  ma}'  be  established  by  showing  that  the 
act  of  the  servant  was  authorized  or  ratified,  or  that  the  master  cm- 
ployed  or  retained  the  servant,  knowing  that  he  was  incompetent,  or, 
from  bad  habits,  unfit  for  the  position  he  occupied.  Something  more 
than  ordinary  negligence  is  requisite;  it  must  be  reckless  and  of  a 
criminal  nature,  and  clearly  established.  Corporations  may  incur  this 
liability  as  well  as  private  persons.  If  a  railroad  company,  for  instance, 
knowingly  and  wantonly  employs  a  drunken  engineer  or  switchman,  or 
retains  one  after  knowledge  of  his  habits  is  clearly  brought  home  to 
the  company,  or  to  a  superintending  agent  authorized  to  employ  and 
discharge  him,  and  injury  occurs  by  reason  of  such  habits,  the  com- 
pany ma}*  and  ought  to  be  amenable  to  the  severest  rule  of  damages ; 
but  I  am  not  aware  of  any  principle  which  permits  a  jury  to  award 
exemplary  damages  in  a  case  which  does  not  come  up  to  this  standard, 
or  to  graduate  the  amount  of  such  damages  by  their  views  of  the  pro- 
priety of  the  conduct  of  the  defendant,  unless  such  conduct  is  of  the 
character  before  specified."  Cleghorn  v.  New  York  Central  Rail- 
road, 56  N.  Y.  44,  47,  48. 

Similar  decisions,  denying  upon  like  grounds  the  liability  of  railroad 
companies  and  other  corporations,  sought  to  be  charged  with  punitive 
damages  for  the  wanton  or  oppressive  acts  of  their  agents  or  servants, 
not  participated  in  or  ratified  by  the  corporation,  have  been  made  by 
the  courts  of  New  Jersey,  Pennsylvania,  Delaware,  Michigan,  Wiscon- 
sin, California,  Louisiana,  Alabama,  Texas  and  West  Virginia. 

It  must  be  admitted  that  there  is  a  wide  divergence  in  the  decisions 
of  the  state  courts  upon  this  question,  and  that  corporations  have  been 
held  liable  for  such  damages  under  similar  circumstances  in  New 
Hampshire,  in  Maine,  and  in  many  of  the  Western  and  Southern 
States.  But  of  the  three  leading  cases  on  that  side  of  the  question, 
JToj)kins  v.  Atlantic  &  St.  Lawrence  Railroad,  36  N.  H.  9,  can 
hardly  be  reconciled  with  the  later  decisions  in  Fay  v.  Parker,  53  N.  H. 
342,  and  Bixby  v.  Dunlap,  56  N.  H.  456  ;  and  in  Goddard  v.  Grand 


430  NIMS   V.   MOUNT   HEKMON   BOYS*   SCHOOL. 

Trunk  Railway,  57  Maine,  202,  228,  and  Atlantic  &  Great  Western 
Railway  v.  Dunn,  19  Ohio  St.  162,  590,  there  were  strong  dissenting 
opinions.  In  man)*,  if  not  most,  of  the  other  cases,  either  corporations 
were  put  upon  different  grounds  in  this  respect  from  other  principals, 
or  else  the  distinction  between  imputing  to  the  corporation  such  wrong- 
ful act  and  intent  as  would  render  it  liable  to  make  compensation  to 
the  person  injured,  and  imputing  to  the  corporation  the  intent  neces- 
sary to  be  established  in  order  to  subject  it  to  exemplary  damages  by 
way  of  punishment,  was  overlooked  or  disregarded. 

Most  of  the  cases  on  both  sides  of  the  question,  not  specifically  cited 
above,  are  collected  in  1  Sedgwick  on  Damages,  (8th  ed.)  §  380. 

In  the  case  at  bar,  the  plaintiff  does  not  appear  to  have  contended  at 
the  trial,  or  to  have  introduced  any  evidence  tending  to  show,  that  the 
conductor  was  known  to  the  defendant  to  be  an  unsuitable  person  in 
any  respect,  or  that  the  defendant  in  any  way  participated  in,  approved 
or  ratified  his  treatment  of  the  plaintiff ;  nor  did  the  instructions  given 
to  the  jury  require  them  to  be  satisfied  of  any  such  fact  before  award- 
ing punitive  damages.  But  the  only  fact  which  they  were  required  to 
find,  in  order  to  support  a  claim  for  punitive  damages  against  the  cor- 
poration, was  that  the  conductor's  illegal  conduct  was  wanton  and 
oppressive.  For  this  error,  as  we  cannot  know  how  much  of  the  ver- 
dict was  intended  by  the  jury  as  a  compensation  for  the  plaintiff's 
injurj',  and  how  much  by  way  of  punishing  the  corporation  for  an 
intent  in  which  it  had  no  part,  the 

Judgment  must  be  reversed,  and  the  case  remanded  to  the  Circuit 
Court,  with  directions  to  set  aside  the  verdict,  and  to  order  a 
new  trial. 

MR.  JUSTICE  FIELD,  MR.  JUSTICE  HARLAN  and  MR.  JUSTICE  LAMAR 
took  no  part  in  this  decision. 


NIMS  v.  MOUNT  HERMON  BOYS'   SCHOOL. 

1893.     160  Mass.  177. 

KNOWLTON,  J.  The  defendant  is  an  educational  corporation.  The 
plaintiff  seeks  to  recover  damages  for  an  injury  received  through  the 
negligence  of  a  ferryman  in  managing  a  boat  on  which  he  was  a 
passenger,  and  which,  as  he  alleges,  the  defendant  was  using  at  a  pub- 
lic ferry  in  the  business  of  carrying  passengers  for  hire.  At  the  request 
of  the  defendant,  the  presiding  justice  ruled  that  there  was  no  evidence 
to  warrant  a  finding  for  the  plaintiff,  and  directed  a  verdict  for  the  de- 
fendant. The  defendant  contends  that  the  ruling  should  be  sustained 
on  one  or  both  of  two  grounds.  It  says  in  the  first  place,  that,  if  it 
maintained  the  ferry  and  hired  and  paid  the  ferryman,  the  business  was 


NIMS  V.  MOUNT  HERMON  BOYS'  SCHOOL.          431 

ultra  vires,  and  therefore  it  is  not  liable  for  negligence  in  the  manage- 
ment of  the  boat.  Secondl}',  it  contends  that  there  was  no  evidence 
to  connect  the  corporation  with  the  business  of  running  the  feny-boat, 
or  to  show  that  the  ferryman  was  its  servant. 

It  is  a  general  rule  that  corporations  are  liable  for  their  torts  as  nat- 
ural persons  are.  It  is  no  defence  to  an  action  for  a  tort  to  show  that 
the  corporation  is  not  authorized  by  its  charter  to  do  wrong.  Recovery 
may  be  had  against  corporations  for  assault  and  battery,  for  libel  and 
for  malicious  prosecution,  as  well  as  for  torts  resulting  from  negligent 
management  of  the  corporate  business.  Moore  v.  Fitchburg 'Railroad, 
4  Gray,  465.  Reed  v.  Home  Savings  Bank,  130  Mass.  443.  Fogg 
v.  Boston  &  Lou-ell  Railroad,  148  Mass.  513.  Philadelphia,  Wil- 
mington, &  Baltimore  Railroad  v.  Quigley,  21  How.  202,  209.  Mer- 
chants' Bank  v.  State  Bank,  10  Wall.  604.  National  Bank\.  Graham, 
100  U.  S.  699.  Gruber  v.  Washington  &  Jamesville  Railroad,  92 
N.  C.  1.  Hussey  v.  Norfolk  Southern  Railroad,  98  N.  C.  34.  If  a 
corporation  b}*  its  officers  or  agents  unlawfully  injures  a  person,  whether 
intentionally  or  negligently,  it  would  be  most  unjust  to  allow  it  to  escape 
responsibility  on  the  ground  that  its  act  is  ultra  vires.  _The  only  plaus- 
ible ground  on  which  the  defendant  in  the  present  case  can  contend 
that  it  should  be^xempt  from  liabilit}'  for  the  negligence  of  its  servant 
in  managing  the  ferry-boat  is  that  the  contract  to  carry  the  plaintiff 
was  Ttltravires,  and  therefore  invalid,  and  that  the  duty  for  loeglect  of 
which  theTplaintiff  sues  aroseout  of  the  contract,  and  disappears  with 
itjwhen  the  contract  appears  to  be  void.  The  defendant  may  argue 
that  the  plaintiff  cannot  maintain  an  action  for  a  breach  of  tEe  contract 
tolise^pfoper  car^  t.n  narry  hirp  safely,  and  that  he  stands  no  better 
when  he  sues  in  tort  for  failure  tojiojitie  duty  which  grew  out  of  the 
contract.  _ 

TnBissell  v.  Michigan  Southern  &  Northern  Indiana  Railroad, 
22  N.  Y.  258,  the  plaintiff  founded  his  action  on  the  negligence  of  the 
two  defendants  while  jointly  running  cars  on  a  railroad  in  a  State  to 
which  the  charter  of  neither  of  them  extended,  and  it  was  conceded 
that  the  defendants  were  acting  ultra  vires.  The  plaintiff  recovered, 
Comstock,  C.  J.  holding  in  an  elaborate  opinion  that  the  corporations 
were  liable  under  their  contract,  notwithstanding  that  the  contract  was 
ultra  vires,  and  that  if  they  could  not  be  held  under  their  contract  the}' 
could  not  be  held  at  all,  inasmuch  as  the  onty  negligence  alleged  was  a 
failure  to  use  the  care  which  the  contract  called  for.  Selden,  J.,  in  an 
equally  full  and  elaborate  opinion,  held  that  the  contract  for  carriage 
was  invalid,  and  that  there  could  be  no  recover}'  under  it,  nor  for  negli- 
gence founded  upon  it ;  but  it  was  his  opinion  that,  if  the  contract  weje 
set_aside, the-defendants  owed  the  plaintiff  a  duty  found£jLon  his  rela- 
tionjbojthem^  as  an  occupant,  with  their  permission,  of  a  placehitheir, 
caiv  and4hat_the  improper  management  of  the  car  was  a  neglect  of 
tbatduty  for  which  the  plaintiff  could  jgcover.  Clerke,  J.  agreed  with 
this  view,  and  all  but  one  of  the  other  judges  concurred  in  a  decision 


432  NIMS   V,   MOUNT  HEKMON   BOYS'   SCHOOL. 

for  the  plaintiff,  without  stating  the  ground  on  which  they  thought  the 
decision  should  be  placed.  This  case  was  followed  in  Buffett  v.  Troy 
&  Boston,  Railroad,  40  N.  Y.  168,  in  which  it  was  held  that  a  railroad 
corporation  was  liable  for  negligence  of  the  driver  of  a  stage-coach 
which  it  was  running  without  a  legal  right  to  do  a  business  of  that 
kind ;  but  the  opinion  does  not  show  whether  the  decision  is  founded 
on  the  opinion  of  Comstock,  C.  J.,  given  in  the  former  case,  or  on  that 
of  Selden,  J.  Like  decisions  have  been  made  under  similar  facts  in 
Central  Railroad  &  Banking  Co.  v.  Smith,  76  Ala.  572  ;  New  York, 
Lake  Erie,  &  Western  Railway  v.  Haring,  18  Vrooui,  137;  and 
Hutchinson  v.  Western  cfe  Atlantic  Railroad,  6  Heisk.  634. 

The  better  doctrine  seems  to  be  that  a  contract  made  by  a  corpora- 
tion in  violation  of  its  charter,  or  in  excess  of  the  powers  granted  to 
it  either  expressly  or  by  implication,  is  invalid  considered  merely  as  a 
contract,  and,  so  long  as  it  is  entirely  executor}',  will  not  be  enforced. 

It  iajTnt__gnjj_g,_  violation  of^jjriva t.p  trust,  vipw^djnj-ftfftrp.rmp.^to   the 

"sTockliolders,  butit^is  against  the  polic}'  of  the  law,  which_intends  that 
corporations  deriving  their  powers  solelyJrogaJhe_Xegislature  shall  not 
pass  be}"ond  the  limits  of  j.he  field  of  activity  in  which  they  are  per- 
mitted by  their  charter  to  work.  Monument  National  Sank  v.  Globe 
Works,  101  Mass.  57.  Attorney  General  v.  Tudor  Ice  Co.  104  Mass. 
239.  Davis  v.  Old  Colony  Railroad,  131  Mass.  258.  Thomas  v. 
Railroad  Co.  101  U.  S.  71.  Leslie  v.  Lorillard,  110  N.  Y.  519. 
Lirikauf  v.  Lombard,  137  N.  Y.  417.  East  Anglian  Railways  v. 
Eastern  Counties  Railway,  11  C.  B.  775,  803.  On  the  other  hand, 
courts  have  frequently  held  that,  while  such  contracts  considered  merely 
as  contracts  are  invalid,  they  involve  no  such  element  of  moral  or  legal 
wrong  as  to  forbid  their  enforcement  if  there  has  been  such  action  under 
them  as  to  work  injustice  if  the}'  are  set  aside.  Courts  have  been 
astute  to  discover  something  in  the  nature  of  an  equitable  estoppel 
against  one  who,  after  entering  into  such  a  contract  and  inducing  a 
change  of  condition  by  another  party,  attempts  to  avoid  the  contract 
by  a  plea  of  ultra  vires.  It  is  said  that  such  ajjlgJLJyill  not  avail  when 
to  allow  it  would  work  injustice  and  accomplish  legaLwrong.  Leslie  v. 
LoriHard^lW  N.  Y.  519^  ~Linkauf  v.  Lombard,  137  N.  Y.  417,  423. 
Many  cases  might  be  supposed  in  which  it  would  be  most  unjust  to  hold 
that  one  who  had  received  the  benefits  of  such  a  contract  might  retain 
them  and  leave  the  other  party  without  remedy,  as  he  might  do  in 
a  supposable  case,  where  another  had  put  himself  at  a  disadvantage 
on  the  faith  of  a  contract  with  him  to  commit  a  crime.  Whether  in 
this  Commonwealth  a  contract  entered  into  by  a  corporation  ultra  vires, 
and  partly  performed,  will  ever  be  enforced  on  equitable  grounds,  we 
need  not  now  decide.  See  McCluer  v.  Manchester  &  Lawrence  Rail- 
road, 13  Gray,  124  ;  National  Pemberton  Bank  v.  Porter,  125  Mass. 
333;  Attleborough  National  Bank  v.  Rogers,  125  Mass.  339;  Atlas 
National  Bank  v.  Savery,  127  Mass.  75,  77 ;  Slater  Woollen  Co.  v. 
Lamb,  143  Mass.  420  ;  Prescott  National  Bcink  v.  Butler,  157  Mass. 


NIMS  V.   MOUNT   HERMON   BOYS'   SCHOOL.  433 

548  ;  National  Bank  v.  Matthews,  98  U.  S.  621 ;  National  Bank  v. 
Whitney,  103  U.  S.  99  ;  Parish  v.  Wheeler,  22  N.  Y.  494 ;  Oil  Creek 
&  Allegheny  River  Railroad  v.  Pennsylvania  Transportation  Co.  83 
Penn.  St.  160 ;  Bradley  v.  Bollard,  55  111.  413.  In  the  present  case 
we  think  it  makes  no  difference  that  the  defendant  was  not  a  manufac- 
turing or  trading  corporation,  but  was  chartered  for  educational  pur- 
poses only.  It  could  acquire  and  hold  property,  make  contracts,  and 
do  anything  else  incidental  to  the  maintenance  of  the  school.  Doubt- 
less some  of  its  officers  or  agents  thought  it  would  be  an  advantage  to 
its  students  and  managers  to  have  a  public  ferry  at  the  place  where  the 
plaintiff  was  injured.  Its  maintenance  of  such  a  ferry  was  ultra  vires 
but  its  acts  in  that  respect  were  not  different  in  kind  from  the  ordinary 
acts  of  corporations  in  excess  of  the  powers  given  them  by  their  char- 
ter. We  are  of  opinion,  therefore,  that  if  the  defendant  while  running 
the  ferry-boat  accepted  the  plaintiff  as  a  passenger  to  be  transported 
for  hire,  and  undertook  to  cany  him  across  the  river,  he  was  in  the 
boat  as  a  licensee,  it  owed  him  the  duty  to  use  proper  care  _to— carry 
him  safely,  and,  whether  an  action^ could  be  nifiintnined  for  a  brpnoh  of 
the  contract  or  not,  it  is  liable  to  thejlaintiff  in  an  action  of  tort  for 
neglectf  of  that  duty. 

The~^otEeFquestion  in  the  case  is  whether  there  was  evidence  that  the 
corporation  operated  the  ferry.  Under  its  by-laws  the  management  of 
the  corporation  is  vested  in  a  board  of  trustees.  It  does  not  appear 
that  any  vote  was  ever  taken  in  regard  to  the  ferry,  and  it  was  not 
shown  that  an}-  officer  of  the  corporation  took  out  the  license  which 
was  granted  to  the  defendant  by  the  count}-  commissioners,  under  Pub. 
Sts.  c.  55,  §  1,  to  keep  the  ferry,  but  the  records  of  the  county  com- 
missioners show  that  such  a  license  was  granted,  and  that  a  bond  with 
sureties  was  given  to  the  county  of  Franklin,  with  the  condition  prop- 
erly to  perform  the  duty  of  a  ferryman,  executed  in  behalf  of  the 
defendant  by  one  who  was  designated  as  superintendent,  and  witnessed 
by  the  defendant's  cashier  and  paymaster.  It  further  appeared  that 
the  title  to  the  property  used  at  the  ferry  was  taken  by  Ambert  G. 
Moody,  one  of  the  trustees  of  the  defendant,  who  was  then  a  student 
in  Amherst  College,  and  that  he  paid  for  it  only  a  nominal  sum  above 
the  mortgage  existing  upon  it,  and  that  he  and  the  defendant's  super- 
intendent, who  had  charge  of  its  farm,  employed  one  Deane  to  operate 
the  ferry,  who  was  paid  by  the  month,  and  who  turned  over  the  balance^ 
of  the  receipts  of  the  ferry  above  his  wages  to  the  defendant's  cashier^ 
and  paymaster.  For  the  month  of  April  Deane  was  paid  for  his 
"services  by  the  defendant's  paymaster  out  of  the  defendant's  funds. 
In  June,  1890,  a  new  ferry-boat  was  constructed  under  an  arrange- 
ment with  Ambert  G.  Moody  and  Dwight  L.  Moody,  both  of  whom 
were  trustees  of  the  corporation,  and  was  paid  for  by  t>|p  p.nymns- 
tqr  out  of  the  funds  ofjjie  corporation.  For  six  months,  and  until 
there  was  a  change  in  the  management  of  the  ferry,  the  defendant's 
cashier  and  paymaster  sent  to  the  treasurer,  who  lived  in  New  York, 

28 


434  NIMS   V.   MOUNT   HERMON   BOYS'    SCHOOL. 

\  monthly  accounts,  showing  monthly  receipts  and  expenses  on  account 
of  the  ferry.  Accompanying  the  first  of  these  accounts  was  a  state- 
ment that  the  school  was  running  the  ferry  and  paying  the  bills.  The 
treasurer  was  himself  a  trustee  of  the  corporation.  He  subsequently 
rendered  his  official  report  to  the  corporation,  which  was  audited  by  an- 
other of  the  trustees,  who  did  not  examine  the  items  in  person,  but 
caused  the  examination  to  be  made  by  a  man  in  his  employment.  This 
report  was  accepted  by  the  trustees  and  placed  on  file.  The  items  of 
receipts  and  expenditures  were  entered  on  the  books  of  the  treasurer 
in  an  account  under  the  title  "  ferry."  The  treasurer's  report  was  not 
put  in  evidence,  and  was  not  produced,  although  the  defendant  was 
notified  to  produce  it. 

There  is  no  evidence  of  original  authority  from  the  defendant  to  any- 
body to  operate  the  ferry  on  its  account,  but  the  evidence  is  plenary 
that  persons  connected  with  the  management  of  itsbusiness  assumed 
so  to  ogeratfi-it^  The  important  question  is  whether  there  wlufevidence 
that  the  corporation  ratified  the  acts  of  these  persons.  We  are  of  opin- 
ion that  there  was  evidence  JrflULjvhich  the  jury  mightbave^  found  such 
ratifi cation. ^~It  is  lurt  necessary  that  the  ratification  should  be  by  a 
formal^vote.  It  is  enough  if  the  corporation,  acting  through  its  man- 
aging officers,  knowing  that  the  business  had  been  done  by  those  who 
assumed  to  act  as  its  agents  in  doing  it,  and  that  the  income  of  the 
business  had  been  received  and  the  expenses  of  it  paid  by  its  treasurer 
in  his  official  capacity,  and  that  the  balance  of  the  receipts  above  the 
expenditures  was  in  its  treasury,  adopted  the  action  of  its  treasurer, 
and  elected  to  keep  the  money.  It  was  a  fair  inference  of  fact,  especi- 
ally when  the  corporation~failed  to  produce  the  treasurer's  report  after 
notice  to  produce  it,  that  the  report  contained  a  true  statement  of  the 
accounts  which  related  to  the  ferry,  and  that  it  was  accepted  with  full 
knowledge  on  the  part  of  the  trustees  of  what  it  contained.  Whether 
there  was  a  ratification  by  the  corporation  was  a  question  of  fact  for 
the  jury  on  all  the  evidence. 

If  there  was  such  a  ratification,  it  carried  with  it  the  consequences 
which  would  have  followed  an  original  authority.  In  Dempsey  v. 
Chambers,  154  Mass.  330,  it  was  held,  after  much  consideration,  that 
ratification  of  an  unauthorized  act  would  make  the  principal  liable  in  an 
action  of  tort  for  an  injury  resulting  from  negligence  of  the  agent  in 
doing  the  act. 

We  are  of  opinion  that  the  case  should  have  been  submitted  to  the 
jury.  Exceptions  sustained. 

D.  Malone,  for  the  plaintiff. 

C.  C.  Conant,  for  the  defendant 


CENTRAL   R.    R.   AND   BANKING  CO.   V.   SMITH.  435 


CENTRAL  R.  R.  &  BANKING  CO.  w.  SMITH. 

1884.     76  Alabama,  572.1 

APPEAL  from  Circuit  Court. 

Action  by  Smith  against  the  appellant,  described  as  "  a  corporation 
created  by  the  laws  of  Georgia,  and  doing  business  in  Alabama  by 
agents."  Plaintiff  seeks  to  recover  damages  for  injuries  sustained  by 
the  sinking  of  the  steamboat  George  W.  Wylly,  while  running  on  the 
Chattahoochee  river ;  the  plaintiff  having  been  a  passenger  at  the  time. 

The  complaint  alleged  that  the  defendant  corporation  was  a  common 
carrier,  and  was,  in  connection  with  one  Whitesides  (who  was  not 
sued),  the  owner  and  proprietor  of  said  steamboat,  and  engaged  in 
running  and  operating  it  for  the  transportation  of  passengers  and 
freight  for  a  reward ;  and  that  the  accident  and  injury  were  caused  by 
the  negligence  of  the  officers  and  persons  in  charge  of  the  boat,  and  its 
unsound  and  rotten  condition.  The  defendant  pleaded  not  guilty,  and 
a  special  plea  which  averred,  in  substance,  that  it  had  no  authority 
under  its  charter  to  engage  in  running  a  steamboat  on  the  Chattahoo- 
chee river,  and  that  the  persons  who  were  engaged  in  running  said 
steamboat,  at  the  time  of  the  alleged  loss  and  injury,  were  not  the 
agents  or  servants  of  said  defendant.  Issue  was  joined  on  both  of 
these  pleas. 

Upon  the  trial  certain -evidence  was  admitted,  against  defendant's 
objection,  to  prove  ownership  of  the  steamer,  and  partnership  or  agency 
in  operating  it. 

The  Court,  at  defendant's  request,  instructed  the  jury  that  the  de- 
fendant had  no  power  under  its  charter  to  own  or  operate  the  steam- 
boat. The  Court,  however,  at  plaintiff's  request,  added  to  this 
instruction :  "  But  this  will  not  excuse  defendants,  if  the  evidence 
shows  they  did  operate  it."  To  this  addition,  defendant  excepted. 

J.  D.  Roquemore,  and  John  Peabody,  for  appellant. 

S.  F,  Rice,  and  H.  R.  Shorter,  contra. 

CLOPTON,  J.  [The  Court  held,  that  certain  evidence  was  improperly 
admitted.  The  Court  also  held,  that  the  corporation  had  no  power, 
under  its  charter,  to  own  and  operate  the  steamboat  in  association  with 
a  natural  person.  The  opinion  then  proceeds  as  follows :] 

7.  With  the  postulate  assumed,  that  the  defendant  has  no  authority 
to  own  and  operate,  in  association  with  a  natural  person,  a  steamboat 
on  the  Chattahoochee  river,  for  carrying  persons  and  freights,  there 
remains  to  be  considered  the  liability  of  the  defendant  to  a  person  for 
injuries  suffered  on  a  boat  thus  owned  and  operated,  while  a  passenger 
thereon. 

This  court  has  repeatedly  decided,  that  the  contracts  of  corporations, 
•which  the}*  have  no  power  to  make,  are  void,  and  that  the  courts  will 

1  Statement  abridged.    Argument  and  part  of  opinion  omitted.  —  ED. 


436        CENTRAL  R.  R.  AND  BANKING  CO.  V.  SMITH. 

not  enforce  them.  "  Snch  contracts  on  the  part  of  a  corporation  are 
•ultra  vires,  and  void,  and  no  right  of  action  can  spring  out  of  them." 
—  Marion  Sav.  Bank  v.  DunJcin,  54  Ala.  471 ;  Chambers  v.  Falkner, 
65  Ala.  448.  No  contract  made  by  a  corporation,  not  within  the 
scope  of  its  powers,  can  be  made  valid,  or  the  foundation  of  a  right 
of  action,  by  the  assent  of  the  shareholders.  If  the  corporation 
attempts  to  cany  such  contract  into  execution,  dissentient  stockholders, 
though  a  minority,  may  restrain  its  consummation.  And  if  suit  is 
brought  against  the  corporation  on  such  contract,  they  may  avail 
themselves  of  the  defense  of  ultra  vires.  —  Davis  v.  Old  Col.  R.  R.  Co., 
131  Mass.  258.  The  settled  doctrine  of  this  court  is,  that  a  reception 
and  retention  j>f  the sjtruits  and  berieftts^7f~tBeTransaction  do  not  estop 
the  corporation  from  denying  its  power  to  make  the  contract ;  though 
an  action  may  be  ^maintained,  rnra  proper  casej^gainst  a  corporation, 
for  the  money  or  property  received^  the  legaleffect  of  such  suit  being 
a  disaffirmance  of  the  prohibited_contract. 

Were  the  present" licttorTfounded  on  a  contract  of  transportation,  it 
is  unquestionable,  that  the  defendant  could  successfully  interpose  the 
defense  of  ultra  vires.  The  action  is,  however,  ex  delicto,  founded  on 
the  common-law  duty  of  a  common  carrier.  The  plaintiff  does  not 
require  the  aid  of  an  illegal  contract  to  establish  his  case ;  its  enforce- 
ment is  not  necessary  to  entitle  him  to  a  recovery.  The  rules  applica- 
ble are  those  which  govern  in  cases  of  torts  committed  b}*  a  corporation. 
The  question  is,  what  is  the  liability  of  a  corporation  for  a  tort,  com- 
mitted while  transacting  a  business  without  and  beyond  the  purview  of 
the  corporate  powers  and  purposes?  This  is  followed  by  another  ques- 
tion ;  by  what  authority,  and  in  what  manner,  can  a  corporation  be 
subjected  to  such  liability  ? 

While,  as  the  law  confers  no  power  or  permission  to  commit  a  wrong- 
ful act,  every  species  of  tort  ma}*  be  technically  ultra  vires,  it  is  well 
established,  that  corporations  may  commit  almost  every  kind  of  tort, 
and  be  liable  to  an  action  for  the  same.  In  such  case,  the  doctrine  of 
iiltrg_wigs_hg£_jio^ application .  —  Mer.  Bank  v.  State  Bank,  10  Wall. 
604.  "  A  corporation  is  liable  to  the  same  extent,  and  under  the  same 
circumstances  as  a  natural  person,  for  the  consequences  of  its  wrong- 
ful acts,  and  will  be  held  to  respond  in  a  civil  action,  at  the  suit  of  an 
injured  part}',  for  every  grade  and  description  of  forcible,  malicious,  or 
negligent  tort  or  wrong  which  it  commits,  however  foreign  to  its  nature, 
or  beyond  its  general  powers,  the  wrongful  transaction  or  act  may  be." 
-&.  Y.  &  tf.  H.  R.  R.  Co.  v.  Schuyler,  34  N.  Y.  30.  Accordingly, 
actions  have  been  maintained  against  corporations  for  libel,  malicious 
prosecutions,  assault,  and  other  torts  too  numerous  to  be  mentioned.  — 
Green  v.  Lon.  Gen.  Om.  Co.,  1  Com.  B.,  N.  S.  388  ;  P.  W.  <&  B.  R.  R. 
Co.  v.  Quiyby,  21  How.  202 ;  Jordan  v.  Ala.  Gt.  So.  R.  R.  Co.,  74 
Ala.  85.  Generally,  it  may  be  said,  that  corpora t.mna  are  1inhlf>  for  the. 
consequences  of  tortious  acts  done  by  its  authority,  though  not  within 
the  scope  of  its  powers,  express,  implied,  or  incidental.  The  distinc- 


CENTRAL  R.  R.  AND  BANKING  CO.  V.  SMITH.        437 

tion  between  the  liability  of  a  corporation,  on  an  unauthorized  contract, 
and  for  a  negligent  or  wrongful  act  in  the  performance  of  such  con- 
tract, is  clearly  and  properly  drawn  by  Selden,  J.,  in  JZissett  v.  Mich. 
So.  &  No.  Ind.  H.  R.  Cos.,  22  N.  Y.  258 ;  which  was  an  action  by  a 
passenger  on  a  train  of  cars,  which  by  contract  the  two  companies  were 
unitedly  running,  for  a  breach  of  duty  to  convey  him  safely,  the  pas- 
senger having  been  injured  by  the  negligence  of  their  servants.  The 
defense  of  the  companies  was,  that,  in  making  the  contract,  they  trans- 
cended their  powers,  and,  consequent!}',  in  judgment  of  law,  the}'  were 
not  operating  the  road,  and  did  not  undertake  to  earn'  the  plaintiff  over 
it.  After  holding  that  the  contract  to  operate  the  consolidated  roads, 
and  to  transport  the  plaintiff,  was  illegal  and  void,  he  says :  "  It  is 
said,  that  if  the  contract  was  ultra  vires,  and  the  corporation  is  pro- 
tected from  all  responsibility  for  its  violation  on  that  ground,  it  must 
be  equally  free  from  responsibility  for  an  injury  inflicted  while  attempt- 
ing to  perform  it.  But  this,  I  apprehend,  by  no  means  follows,  though 
it  is  probably  true,  so  far  as  the  duty  to  observe  due  care  grows  out  of 
the  contract.  The  plaintiff's  claim,  however,  rests  not  upon  his  con- 
tract, but  upon  the  right  which  every  man  has  to  be  protected  from 
injury  through  the  carelessness  of  others.  It  has  the  same  legal  foun- 
dation as  that  of  one  who  has  been  injured  by  the  negligent  driving  of 
some  person  upon  the  public  highwaj',  or  has  been  run  over  b}T  a  train 
of  cars,  when  crossing  the  railroad  track.  The  duty  to  observe  care, 
in  these  cases,  arises,  not  upon  any  contract,  but  from  the  obligation 
which  rests  upon  all  persons,  whether  natural  or  artificial,  so  to  con- 
duct as  not  through  their  negligence  to  inflict  injury  upon  others." 
An  exemption  from  liability  in  such  cases,  because  the  act  is  ultra 
vires,  would  be  a  license  to  corporations  to  do  wrongs  to  others. 
From  these  principles  it  follows,  that  if  the  defendant  undertook  the 
business  of  transporting  persons  by  a  mode  of  couvej-ance  other  than 
that  authorized  and  provided  by  the  charter,  its  duties  and  responsi- 
bilities to  a  passenger  are  the  same  as  if  the  business  was  authorized 
and  legal. 

8.  But,  before  the  duties  and  responsibilities  attach,  the  corporation 
must  undertake  and  engage  in  the  business,  and  thereb}"  assume  its 
burdens.  Of  this  there  can  be  no  implication,  from  the  isolated  fact, 
that  some  officer  or  agent  has  engaged,  in  the  name  of  the  company, 
in  running  and  operating  the  boats ;  in  other  words,  there  can  be  no 
implication  that  a  corporation  has  made  a  contract,  or  engaged  in 
business  transcending  its  powers.  —  Green's  Brice's  TJ1.  Vires,  364. 
It  may  be  inferred  from  proved  circumstances,  as  other  facts,  but  is  t 
not  the  subject  of  implication.  Corporations  are  responsible  for  the 
wrongs  committed  by  their  officers,  agents,  or  servants,  while  in  the 
course  of  their  employment;  but,  if  the  officer,  agent,  or  servant,  "go 
be3'ond  the  range  of  his  employment  or  duties,  and  of  his  own  will  do 
an  unlawful  act  injurious  to  another,  the  agent  is  liable,  but  the  master 
or  employer  is  not."  Gittiam  v.  S.  &  N.  M.  M.  Co.,  70  Ala.  268. 


438  CENTRAL   E.   R.   AND   BANKING   CO.   V.   SMITH. 

The  liinitation  is,  the  scope  of  the  employment,  or  delegated  authorit}*. 
If  an  officer  or  agent  can  not  directly  subject  the  corporation  to  liability 
for  his  tortious  act  beyond  the  range  and  course  of  his  employment, 
though  done  while  engaged  in  its  performance,  for  what  reason,  or  on 
what  principle  is  it,  that  an  officer  or  agent  can,  by  making  an  unlawful 
transaction,  and  engaging  in  an  unauthorized  and  unlawful  business,  in 
the  name  of  the  company,  without  the  authority  of  the  corporation, 
indirectly  subject  it  to  liability  for  the  negligent  or  intentional  wrongs 
of  the  agents  or  servants  employed  by  him  in  the  performance  of  such 
contract,  or  in  carrying  on  such  business?  While  corporations  should 
be  held  to  a  strict  responsibility  for  the  wrongful  acts  of  their  employees, 
when  done  in  the  course  of  their  employment,  and  connected  with  the 
execution  of  the  business  for  which  incorporated,  they  should  be  pro- 
tected against  the  consequences  of  unauthorized  acts  of  their  officers  or 
agents,  committed  in  excess  of  its  powers,  and  unconnected  with  the 
business  or  purposes  of  their  incorporation  and  organization,  especially 
when  dealing  with  persons  charged  with  notice  of  their  powers,  and 
the  nature  and  extent  of  the  euapUtyuient  and  authority  of  the  officer 
or  agent. 

In  Brokaw  v.  AT.  J.  E.  &  T.  Co.,  32  N.  J.  Law,  328,  it  is  said  :  "  In 
considering  the  question  whether  the  agent  has  the  authority  of  the 
corporation,  so  as  to  make  it  answerable  for  his  act,  the  purposes  for 
which  the  company  was  incorporated  must  not  be  overlooked.  An 
authorit}"  given  even  by  the  board  of  directors,  in  express  terms,  will 
not,  in  all  cases,  be  the  authority  of  the  corporation.  The  directors 
are  only  agents  themselves,  and  their  powers  are  necessarily  limited 
within  the  scope  of  the  purposes  for  which  the  corporation  was  created, 
beyond  which  they  are  not  authorized  to  bind  the  corporation.  Tofix 
the  liability  of  a  corporation  for  the  tortious  acts  of  one  of  its  employees, 
done,  in  obedience  tolihe  commands  of  its^officers,  the  act  must  be  con- 
nected with  the  transaction  of  the  business  for  which  the  company  was 
Jncorpora ted.  If  the  directors  suouid  order  an  agent  to  take  a  person 
I  out  of  his  house  and  beat  him  ;  or  if  the  directors  of  a  banking  company 
I  should  purchase  a  steamboat,  and  engage  in  transporting  passengers, 
\  the  corporation  would  not  be  liable  for  the  misfeasance  or  nonfeasance 
of  agents  employed  in  that  business."  It  is  true  that  the  board  of 
directors  may  be  invested  by  the  charter,  or  general  law,  with  such 
management  and  authorit}'  as  practically  to  constitute  it  the  corpora- 
tion ;  but,  by  the  provisions  of  the  charter  of  the  defendants,  the 
directors  are  agents  and  representatives,  with  authority  limited  by  the 
scope  of  the  powers,  business,  and  purposes  of  the  corporation.  It  will 
be  observed_Jhat  the  business  was  not  carried  on  in  the  name  of  the 
corporation^  As  there  is  no  implied  authority  of  any  officer  or  agent 
to  maklTan  ultras-vires  contract,  or  transaction,  and  on  that  ground 
merely  bind  the  corporation,  it  follows,  that  if  the  boats  were  purchased 
and  engaged,  in  connection  with  Whitesides,  in  the  business  of  trans- 
porting persons  and  freight  on  the  Chattahoochee  river,  by  the  presi- 


CENTRAL   R.   R.   AND   BANKING   CO.   V.   SMITH.  439 

dent,  superintendent,  or  even  the  directors,  the  corporation  is  not  bound 
thereb}-,  and  is  not  liable  for  the  negligent  or  wrongful  acts  of  the 
persons  employed  in  such  business,  unless  the  transaction  was  pre- 
viously authorized,  or  subsequently  ratifijBd_by^he^corporation.  With- 
out such  authority  or  ratification,  the,  persons  thus  employed  are  not 
the  agents  or  employees  of  the  corporation.  As  the  immediate  or 
direct  act  of  the  officer  or  agent,  in  such  case,  can  not  bind  the  cor- 
poration,  his  mere  knowledge  of,  and  acquiescence  in  the  prosecution 
of  such  business,  are  not  tantamount  to  a  ratification  by  the  corporation. 
Considering  the  difference  between  the  principles  which  govern  the 
liability  of  the  company  for  the  tortious  acts  of  its  agents  committed  in 
the  course  of  their  authorized  emplo3*ment,  and  its  liability  for  the 
tortious  acts  of  persons  emp^ed  in  the  conduct  and  prosecution  of  a 
business  undertaken  on  behalf  of  the  corporation  by  its  agents,  beyond 
the  range  of  their  employment,  and  prohibited  by  the  laws  of  its 
creation,  the  previous  authority  or  subsequent  ratification  in  order  to 
bind  _the  corporation,  must  be  in  corporate  capacity. 

A  corporation  is  an  artificial  bod}',  a  distinct  person,  in  legal  con- 
templation, from  the  stockholders,  in  which  the  corporate  property  is 
vested.  Its  will  is  usually  or  ordinarily  expressed  at  a  meeting  of  the 
corporators.  Its  officers  are  its  agents,  and  not  the  agents  of  the 
stockholders.  In  this  sense,  previous^  authority^jojbiiod.  the  corpora- 
tion by  the  act  of  an  officer  or  agent  transcending  its  powers  and 
unconnected  with  its  authorized  business  and  purposes,  must  be  the 
result  of  corporate  action,  as  conli-adistinguished  from  the  individual 
action  of  the  stockholders  or  officers.  Subsequent  ratification  results, 
when  a~^nowlectge~of  the  business  jeing  thus  conducted,  and  of  the 
reception  and  retention  of  its  fruiti~an(L-b.enefits,  is_brought  home  to 
the  corporators,  at  a  time,  and  under  circumstances  which  require  them 
to^Tect  to  repudiate  or  be  bound,  and  they  fail  to  disavow  the  act  ;  in 
other  words,  any  facts,  whichjypjildjis-ajatiflcation^rihe  unauthorized 


agent  by  a  principal  who  is  a  natural  person  . 

An  application  of  these  principles  will  probably  be  a  sufficient  guide 
on  another  trial 

Reversed  and  remanded. 


440         THE   QUEEN   V.   BIRMINGHAM   AND   GLOUCESTER   B.   CO. 


CHAPTER  XIII. 

LIABILITY  OF  CORPORATION  FOR  CRIMES  AND 
CONTEMPTS. 


ANONYMOUS. 

13  Wm.  3.     12  Modem,  559  (Case  No.  935). 

NOTE  :  Per  Holt,  Chief  Justice.     A  corporation  is  not  indictable, 
but  the  particular  members  of  it  are. 


THE  QUEEN  v.   BIRMINGHAM   &  GLOUCESTER  R.   Co. 

1842.    3  Queen's  Bench  (Ad.  $•  Ell.  N.  S.)  223. 

INDICTMENT,  found  at  the  Spring  assizes  for  the  count}'  of  Worcester, 
1840,  against  a  corporation  aggregate,  the  Birmingham  and  Gloucester 
Railway  Company,  for  disobedience  to  an  order  of  justices  and  an  order 
of  sessions  confirming  it,  whereby  the  defendants,  pursuant  to  certain 
provisions  contained  in  the  statute,1  incorporating  the  company,  were 
directed  to  make  cert^n^ari&ejaJxuiojine^tJands  wjiicb^had  been  severed 
by  the  railway...  The  defendants  not  coining  in  to  plead  under  the 
usuaT~venire,  some  of  the  goods  of  the  company  were  seized  under  a 
distringas ;  and  at  the  Worcester  Summer  assizes,  1840,  two  of  the 
directors  appeared  in  court  to  plead,  but  the  officer  of  the  court  refused 
to  receive  their  plea ;  and,  an  application  on  the  subject  being  made  to 
the  learned  Judge,  (PARKE,  B.,)  he  intimated  an  opinion  that  the  de- 
fendants could  appear  only  by  attorney,  that  they  could  not  appear  by 
attorney  at  the  assizes,  and  that  the  only  course  was  to  remove  the 
indictment  by  certiorari  into  this  Court,  and  that  the  defendants  should 
plead  by  attorney  there.2 

In  Hilary  term,  (January  21st,)  1841,  Whateley  obtained  a  rule  for 
a  certiorari  to  bring  up  the  indictment ;  LITTLEDALE,  J.,  observing,  on 
the  motion,  that  he  never  heard  of  an  indictment  against  a  company 
for  disobedience  to  an  order.  In  the  same  term  Whateley  obtained  a 

1  6  &  7  W.  4,  c.  xiv.,  local  and  personal,  public. 

2  Regina  v.  The  Birmingham  and  Gloucester  Railway  Company,  9  C.  &  P.  469. 


THE   QUEEN   V.   BIRMINGHAM   AND   GLOUCESTER  R.   CO.         441 

rule  to  show  cause  why  the  indictment  should  not  be  quashed,  as  not 
being  maintainable  against  a  corporation.  In  Trinity  term,  1841, * 

Talfourd,  Serjt.,  showed  cause,  and  contended  that,  although  an 
indictment  for  misfeasance  would  not  have  lain,  corporations  were  in- 
dictable for  omission  of  duty.2  (The  authorities  and  precedents  men- 
tioned were  again  cited  on  the  argument  of  the  demurrer.)  He  also 
urged  that  the  objection  taken  was  no  ground  for  a  motion  to  quash, 
but  might  be  raised  on  demurrer,  in  arrest  of  judgment,  or  by  writ  of 
error.  On  this  point  he  cited  Rex  v.  Cooke,  2  B.  &  C.  618. 

Whateley,  in  support  of  the  rule,  contended  that  in  all  the  precedents 
individuals  were  pointed  out  against  whom  ulterior  proceedings  could 
be  taken  on  conviction :  here  it  was  not  known  who  composed  the 
company.  And  that,  if  the  prosecutors  demurred  and  judgment  were 
given  against  them,  they  would  be  concluded. 

Lord  DENMAN,  C.  J.  As  to  the  proceedings,  I  do  not  feel  the  diffi- 
cult}- so  strongly  as  }-ou  put  it.  We  do  not,  however,  wish  to  decide 
the  point  on  tin's  motion.  We  take  upon  ourselves  to  say  that  }'ou 
may  demur ;  and,  if  we  decide  against  you,  you  may  plead  over. 

Per  curiam  ;  Rule  discharged. 

The  defendants  appeared  in  this  Court,  and  demurred :  and,  the 
prosecutors  having  joined  in  demurrer,  the  case  was  argued,  in  last 
Hilary  term,8  by 

'Whateley,  for  the  defendants. 

But,  supposing  the  defendants  to  have  pleaded  and  to  have  been 
found  guilty,  no  punishment  can  follow :  the  judgment  for  a  misde- 
meanor is  that  the  defendant  be_fined,  et  quod  idem  A.  B.  capiatur  ad 
satisfaciendum  dicto  Domino  regi  de  fine  praedicto :  that  is  the  form  in 
Fanshawe's  Case,  Trem.  P.  C.  202.  204  ;  and  a  similar  form  is  used  in 
Holies'  Case,  Trem.  P.  C.  294.  302.  A  corporation  aggregate  cannot 
be  taken ;  and,  supposing  it  to  have  no  property,  there  is  no  punish- 
ment that  could  be  enforced ;  they  cannot  "  be  outlawed,  nor  excom- 
municate, for  they  have  no  souls,  neither  can  they  appear  in  person, 
but  by  attorney ;  33  H.  8,  Br.  Fealty,"  Bro.  Ab.  Fealtie  &  Homage, 
pi.  15 ;  The  Case  of  Sutton's  Hospital,  10  Rep.  1  a,  32  b.  So  in 
Com.  Dig.  Franchises,  (F  19,)  it  is  said  that  "  process  of  outlawry  does 
not  lie  against  a  corporation  aggregate ;  "  "  and  therefore  trespass  does 
not  lie  against  a  corporation,  but  against  the  particular  persons  only  ; 
for  a  capias  and  exigent  do  not  go  against  a  corporation." 

[Remainder  of  argument  omitted.] 

Talfourd,  Serjt.,  contra. 

[Argument  omitted.]  Cur.  adv.  viclt. 

1  May  27th.    Before  Lord  Denman,  C.  J.,  Patteson,  Williams,  and  Wightman,  Js. 

2  Stat.  6  &  7  W.  4,  c.  xiv.,  s.  1,  enacts  that  the  company  may  " sue  and  be  sued" 
by  their  corporate  name  ;  and  sect.  120,  regulates  the  form  of  indictment  in  prosecu- 
tions by  them  :  but  the  act  gives  no  direction  as  to  indictments  against  them. 

»  Wednesday,  January  26th.    Before  Patteson,  Coleridge,  and  Wightman,  Js. 


442         THE   QUEEN  V.   BIRMINGHAM   AND   GLOUCESTER   R.   CO. 

PATTESON,  J.,  in  this  term,  (May  28th,)  delivered  the  judgment  of 
the  Court.  After  stating  the  indictment,  removal  by  certiorari,  appear- 
ance, demurrer,  and  ground  of  demurrer,  his  Lordship  proceeded  as 
follows. 

Upon  the  argument  it  was  not  contended  on  the  part  of  the  company 
that  an  action  of  trespass  might  not  be  maintained  against  a  corpora- 
tion ;  for,  notwithstanding  some  dicta  to  the  contrary  in  the  older 
cases,  it  may  be  taken  for  settled  law,  since  the  case  of  Yarborough  v. 
The  Bank  of  England,  16  East,  6,  in  which  the  cases  were  reviewed, 
that  both  trover  and  trespass  are  maintainable :  but  it  was  said  that  an 
indictment  will  not  lie  against  a  corporation.  Only  one  direct  author- 
ity was  cited  for  this  position ;  and  it  is  a  dictum  of  Lord  HOLT  in 
an  Anonymous  case  reported  in  12  Mod.  559.  The  report  itself  is  as 
follows:  "Note:  Per  HOLT,  Chief  Justice.  A  corporation  is  not  in- 
dictable, but  the  particular  members  of  it  are."  What  the  nature  of 
the  offence  was  to  which  the  observation  was  intended  to  apply  does 
not  appear ;  and  as  a  general  proposition  it  is  opposed  to  a  number  of 
cases,  which  show  that  a  corporation  may  be  indicted  for  breach  of  j*^ 
dut}T  imposed  upon  it  by  law,  though  not  for  a  felony,  or  for  crimes  in- 
volving personal  violence,  as  for  riots  or  assaults ;  Hawk.  P.  C.,  B.  1, 
c.  66,  s.  13,  Vol.  ii.  p.  58,  7th.  ed. 

A  corporation  aggregate  may  be  liable  by  prescription,  and  compelled, 
to  repair  a  highway  or  a  bridge ;  Hawk.  P.  C.,  B.  1,  c.  76,  s.  8,  c.  77, 
s.  2,  Vol.  ii.  pp.  156.  258  :  and  in  the  case  of  Hex  v.  The  Mayor,  &c. 
of  Liverpool,  3  East,  86,  the  corporation  were  indicted  by  their  cor- 
porate name  for  non-repair  of  a  highwa}*,  and,  upon  argument  in  this 
Court,  the  indictment  was  held  to  be  defective ;  but  no  question  was 
made  as  to  the  liability  of  a  corporation  to  be  indicted. 

In  the  case  of  Hex  v.  The  Mayor,  <&c.  of  Stratford-upon-Avon,  14 
East,  348,  the  corporation  was  indicted  by  its  corporate  name  for  a 
non-repair  of  a  bridge,  and  found  guilty,  and  upon  argument  in  this 
Court  the  verdict  was  sustained,  and  no  question  made  as  to  the  lia- 
bility generally  of  a  corporation  to  an  indictment  for  breach  of  a  duty 
cast  upon  it  by  law. 

Upon  the  discussion  of  the  question  in  the  present  case,  the  counsel 
for  the  company  relied  chiefly  upon  the  circumstance  of  the  indictment 
being  found  at  the  quarter  sessions,1  where  the  company  could  not  ap- 
pear and  take  their  trial,  even  if  so  disposed,  as  a  corporation  can  only 
appear  by  attorne}',  and  the  appearance  at  the  sessions  must  be  in  per- 
son. We  think  there  is  no  weight  in  this  objection.  It  may  indeed 
impose  some  difficulty  upon  the  prosecutor,  and  render  his  proceeding 
more  circuitous,  as  he  will  be  obliged  to  remove  the  indictment  by  cer- 
tiorari into  this  Court  in  order  to  make  it  effective  ;  but  the  liability  of 
the  corporation  is  not  affected. 

In  the  case  of  Rex  v.  Gardner,  1  Cowp.  79,  it  was  objected  that  a 
corporation  could  not  be  rated  to  the  poor,  because  the  remedy  by  im« 

1  It  was  so  put,  hypothetically,  in  the  argument  for  the  defendants. 


THE  QUEEN  V.  GREAT  NORTH  OF  ENGLAND  R.  CO.     443 

prisonment  upon  failure  of  distress  was  impossible  ;  but  the  Court  con- 
sidered the  objection  of  no  weight,  though  it  might  be  that  there  would 
be  some  difficulty  in  enforcing  the  remedy. 

The  proper  mode  of  proceeding  against  a  corporation,  to  enforce  the 
remedy  by  indictment,  is  by  distress  infinite  to  compel  appearance, 
after  removal  by  certiorari,  as  suggested  by  Mr.  Baron  PARKE  in  this 
very  case,  reported  in  9  Car.  &  Payne,  469,  and  as  appears  by  Hawk. 
P.  C.,  B.  2,  c.  27,  s.  14,  Vol.  iv.  p.  140,  and  the  cases  cited  in  6  Vin. 
Abr.  310,  &c.,  tit.  Corporations,  (B.  a)  Vol.  iv.  p.  140. 

We  are  therefore  of  opinion  that  upon  this  demurrer  there  must  be 
udgment  for  the  Crown.  Judgment  for  the  Crown. 


THE  QUEEN  v.  GREAT  NORTH  OF  ENGLAND  R.  CO. 

1846.    9  Queen's  Bench  (Ad.  fr  Ell.  N.  S.),  31 5.1 

INDICTMENT  against  an  incorporated  railway  company  for  cutting 
through  and  obstructing  a  highway.  Plea,  not  guilty.  Issue  thereon. 

On  the  trial,  before  WIGHTMA.N,  J.,  at  the  Durham  Spring  assizes, 
1845,  evidence  was  given,  on  the  part  of  the  prosecution,  to  show  that 
the  Compan}*  had  cut  through  a  carriage  road  with  the  railway,  and 
had  carried  the  road  over  the  railway  by  a  bridge  not  satisfying  the 
statutory  provisions.  For  the  defendants,  it  was  objected  that  nojn^ 
dictment  for  a  misfeasancecould  be  maintained  against  a  Corporation  ; 
and  as  to  the  first  four  counts,  that  the  defendants  were  authorised  to 
cut  through  the  road  and  erect  the  bridge,  and  that,  if  in  doing  so,  they 
had  not  complied  with  the  statutory  provisions,  they  ought  to  have 
been  indicted  for  breach  of  those  provisions.2  Other  objections  were 
taken  to  the  last  five  counts,  which  it  is  unnecessary  to  state.  A  ver- 
dict was  found  for  the  Crown  on  all  the  counts,  leave  being  reserved  to 
move  to  enter  a  verdict  for  the  defendants,  or  to  arrest  the  judgment. 

In  Easter  term,  1845,  Woriley  obtained  a  rule  accordingly.  In  this 
term,8 

Granger,  Otter,  and  Bovill  showed  cause. 

Snowies,  Bliss,  and  Joseph  Addison,  contra. 

Cur.  adv.  vult. 

Lord  DENMAN,  C.  J.,  now  delivered  the  judgment  of  the  Court. 

The  question  is,  whether  an  indictment  will  lie  at  common  law  against 
a  corporation  for  a  misfeasance,  it  being  admitted,  in  conformity  with 

1  Statement  abridged.    A rgnments  omitted. — ED. 

2  The  argument,  as  to  this  point,  in  bane,  is  omitted  in  the  report,  the  Court  having 
pronounced  no  express  decision  upon  it :  Regina  v.  Scott,  3  Q.  B.  543,  was  referred  to. 

3  Tuesday,  May  26th,  and  Monday,  June  8th.    Before  Lord  DENMAN,  C.  J.,  PAI> 
XESON,  and  WIGHTMAN,  Js. 


444     THE  QUEEN  V.  GREAT  NORTH  OF  ENGLAND  R.  CO. 

undisputed  decisions,  that  an  indictment  may  be  maintained  against  a 
corporation  for  nonfeasance. 

All  the  preliminary  difficulties,  as  to  the  service  and  execution  of 
process,  the  mode  of  appearing  and  pleading,  and  enforcing  judgment, 
are  by  this  admission  swept  away.  But  the  argument  is,  that  for  a 
wrongful  act  a  corporation  is  not  amenable  to  an  indictment,  though 
for  a  wrongful  omission  it  undoubtedly  is  ;  assuming,  in  the  first  place, 
that  there  is  a  plain  and  obvious  distinction  between  the  two  species  of 
offence. 

No  assumption  can  be  more  unfounded.  Many  occurrences  may  be 
easily  conceived,  full  of  annoyance  and  danger  to  the  public,  and  in- 
volving blame  in  some  individual  or  some  corporation,  of  which  the 
most  acute  person  could  not  clearly  define  the  cause,  or  ascribe  them 
with  more  correctness  to  mere  negligence  in  providing  safeguards  or  to 
an  act  rendered  improper  by  nothing  but  the  want  of  safeguards.  If 
A.  is  authorized  to  make  a  bridge  with  parapets,  but  makes  it  without 
them,  does  the  offence  consist  in  the  construction  of  the  unsecured 
bridge,  or  in  the  neglect  to  secure  it? 

But  if  the  distinction  were  always  easily  discoverable,  wh}"  should  a 
corporation  be  liable  for  the  one  species  of  offence  and  not  for  the  other? 
The  startling  incongruity  of  allowing  the  exemption  is  one  strong  argu- 
ment against  it.  The  law  is  often  entangled  in  technical  embarrass- 
ments ;  but  there  is  none  here.  It  is  as  easy  to  charge  one  person  1  or 
a  body  corporate,  wither-gcting  a  bar  across  a  public  road  as  with  the 
non-repair  of  it;  and- tEey~maj'-as  well  be  compelled  to  pay  a  fine  for 
the  act  as  for  the  omission. 

Some  dicta  occur  in  old  cases :  "  A  corporation  cannot  be  guilt}'  of 
treason  or  felon}'."  It  might  be  added  "  of  perjury,  or  offences  against 
the  person."  The  Court  of  Common  Pleas  lately  held  that  a  corpora- 
tion might  be  sued  in  trespass,  Maund  v.  The  Monmouthshire  Canal 
Company,  4  M.  &  G.  452  ;  but  nobody  has  sought  to  fix  them  with  acts 
of  immorality.  These  plainly  derive  their  character  from  the  corrupted 
mind  of  the  person  committing  them^and  are  violations  of  the  social 
duties  that  belong  to  men  and  subjects.  A  corporation,  which,  as  such, 
has  no  such  duties,  cannot  be  guilty  in  these  cases  ;  but  they  may  be 
guilty  as  a  body  corporate  of  commanding  acts  to  be  done  to  the  nui- 
sance of  the  community  at  large.  The  late  case  of  Regina  v.  Birming- 
ham and  Gloucester  Railway  Company,  3  Q.  B.  223,  was  confined  to 
the  state  of  things  then  before  the  Court,  which  amounted  to  nonfea- 
sance only ;  but  was  by  no  means  intended  to  deny  the  liability  of  a 
corporation  for  a  misfeasance. 

We  are  told  that  this  remedy  is  not  required,  because  the  individuals 
who  concur  in  voting  the  order,  or  in  executing  the  work,  may  be  made 
answerable  for  it  by  criminal  proceedings.  Of  this  there  is  no  doubt. 
But  the  public  knowsnothing  of  the  former ;  andjthejatter,  if  they  can 
be  identified,  are  commonly  persongjof  the  lowfi&t-rank,  wholly  incom- 
petent to  make  an}'  reparation  for  the  injury.  There  can  be  no  effectual 


STATE   V.   PASSAIC   COUNTY   AGRICULTURAL   SOCIETY.  445 

means  for  deterring  from  an  oppressive  exercise  of  power  for  the  pur- 
pose of  gain,  except  the  remedy  by  an  indictment  against  those  who 
truly  commit  it,  that  is,  the  corporation,  acting  by  its  majority :  and 
there  is  no  principle  which  places  them  beyond  the  reach  of  the  law  for 
such  proceedings. 

The  verdict  for  the  Crown,  therefore,  on  the  first  four  counts,  will 
remain  undisturbed. 

Judgment  to  be  entered  on  the  first  four 
counts  ;  arrested  on  the  others. 


STATE  v.  PASSAIC  COUNTY  AGRICULTURAL   SOCIETY. 

1892.     54  New  Jersey  Law,  260.1 

IN  error  to  Passaic  Quarter  Sessions. 

Argued  at  June  Term,  1891,  before  BEASLEY,  CHIEF  JUSTICE,  and 
Justices  VAN  SYCKEL  and  KNAPP. 

For  the  plaintiff  in  error,  Robert  I.  Hopper  and  Samuel  Halisch. 

For  the  State,  William  B.  Gourley. 

The  opinion  of  the  court  was  delivered  by 

VAN  SYCKEL,  J.  The  defendant  was  convicted  in  the  Passaic  Quarter 
Sessions  for  keeping  a  disorderly  house. 

[Omitting  part  of  opinion.] 

Thirdly.  It  is  urged  that  a  corporation  cannot  be  indicted  for  keep- 
ing a  disorderly  house. 

Some  of  the  earlier  cases  held  that  trespass  or  case  would  not  lie 
against  a  corporation  for  a  private  nuisance,  but  that  doctrine  has  long 
since  been  exploded.  In  early  days  when  corporate  bodies  were  few, 
it  was  a  matter  of  comparatively  small  consequence  whether  such  an 
action  could  be  maintained. 

In  these  days,  however,  when  the  great  concerns  of  business  are 
carried  on  chiefly  through  these  artificial  persons,  it  would  be  most 
oppressive  to  hold  that  the}*  are  not  amenable  to  answer  for  such 
wrongs  as  subject  natural  persons  to  prosecution. 

Mr.  Wharton  says  that  no  good  reason  can  be  assigned  win*  the  same 
acts,  for  which  these  bodies  are  subject  to  civil  suit,  may  not  equallj*  be 
the  basis  of  criminal  proceedings  when  they,  result  in  injury  to  the  pub- 
lic at  large.  1  Whart.  Cr.  Z.,  §  87. 

The  Queen  v.  The  Great  North  of  England  Railway  Co. ,  9  Q.  B. 
316,  is  a  leading  and  instructive  case  on  this  subject,  showing  the 
advance  which  the  doctrine  holding  corporations  criminally  liable  had 
made  at  the  date  of  that  adjudication. 

1  Only  so  much  of  the  opinion  is  given  as  relates  to  one  point.  —  ED. 


446  STATE  V.   PASSAIC  COUNTY  AGRICULTURAL  SOCIETY. 

The  earlier  cases  are  cited  there,  and  the  summing  up  of  Lord  Chief 
Justice  Denrnan  shows  how  firmly  he  held  to  the  idea,  that  upon  reason 
and  policy  an  indictment  could  be  supported  against  a  corporation  for 
misfeasance  as  well  as  for  non-feasance. 

He  entertained  no  doubt  that  a  corporation  may  be  guilty,  as  a  cor- 
porate body,  of  commanding  acts  to  be  done  to  the  nuisance  of  the 
community  at  large. 

In  reply  to  the  suggestion  that  the  individuals  who  concur  in  doing 
the  inhibited  acts  "n  pphqir  Afl  ltlu  <«>>-p<>rMiinn  m^y  he  indicted,  he  said, 
that  while  of  that  there  was  no  doubt,  there  can  be  no  effectual  means 
for  deterring  from  the  commission  of  criminal  acts,  except  the  remedy 
by  an  indictment  against  those  who  truly  commit  them  —  that  is,  the 
corporation  acting  by  its  majority ;  and  that  there  is  no  principle  which 
places  them  bc3rond  the  reach  of  the  law  for  such  proceedings. 

Tti^Uommonwealth  v.  Proprietors  of  New  Bedford  Bridge,  2  Gray 
339,  the  Massachusetts  Supreme  Court  adopted  the  same  view,  declar- 
ing that  the  tendency  of  the  more  recent  cases  in  courts  of  the  highest 
authority  has  been  to  extend  the  application  of  all  legal  remedies  to  cor- 
porations, and  assimilate  them,  as  far  as  possible,  in  their  legal  duties 
and  responsibilities  to  individuals. 

Mr.  Beach  in  his  treatise  on  Private  Corporations  (Vol.  II.,  p.  458), 
says  that  the  tendency  of  judicial  decision  has  been  to  extend  the  liabil- 
ity of  corporations  in  civil  actions  for  the  misfeasance  of  their  agents, 
so  that  it  is  well  settled  that  they  may  be  held  liable  for  libel,  malicious 
prosecution  and  for  assault  and  battery  committed  by  their  agents  in  the 
performance  of  their  duties,  and  in  view  of  the  fact  that  they  may  in 
such  suits  be  subjected  to  exemplary  or  punitive  damages,  the  assertion 
that  they  cannot  be  held  liable  to  indictment  for  any  offences,  which 
derive  their  criminality  from  evil  intent,  ma}'  well  be  questioned. 

The  very  basis  of  the  action  for  libel  or  for  malicious  prosecution  is 
the  evil  intent,  the  mn.1ifip.  of  the  party  defendant.  It  is  difficult,  there- 
fore, to  see  how  :i  corporation  may  bo  amenable  to  civil  suit  for  libel 
and  malicious  prosecution  and  private  nuisance,  and  mulcted  in  exem- 
plary damages,  and  at  the_S9,m<>  tima  not  be  indictable  forjige_offences , 
where  the  injury  falls  upon  the  public. 

That  mattc^TancTevil  intent  may  be  imputed  to  corporations  has  been 
repeatedly  adjudged.  Morton  v.  Metropolitan  Life  Ins.  Co.,  103  N.  Y. 
645  ;  Meed  v.  Home  Savings  Bank,  130  Mass.  443  ;  Buffalo  Company 
v.  Standard  Oil  Co.,  106  N.  Y.  669. 

The  case  last  cited  was  an  action  to  recover  damages  caused  by 
conspirac}7. 

So  far  as  this  question  has  been  agitated  in  New  Jersey,  our  decisions 
have  been  in  line  with  the  cases  which  have  been  cited.  State  v.  Mor- 
ris Canal  Co.,  2  Zab.  537  ;  State  v.  Godwinville,  &c.,  20  Vroom,  266  ; 
McDermott  v.  The  Evening  Journal,  14  Id.  488 ;  JSrokaw  v.  New 
Jersey  E.  E.  Co.,  3  Id.  328. 

The  question  whether  criminal  intent  may  be  imputed  to  a  corporation 
is  not  necessarily  involved  in  the  discussion  of  the  case  before  us. 


PEOPLE  V.   ALBANY   AND   VEKMONT  R.   CO.  447 

The  habitual  indulgence  in  the  vicious  practices  on  the  premises  of 
the  defendant  corporation  stamps  it  as  a  disorderly  house,  without 
regard  to  the  intent  which  prompted  the  disorder. 

In  my  opinion,  the  judgment  below  should  be  affirmed. 


PUBLIC  STATUTES  OF  MASSACHUSETTS. 
CHAP.  3.     SECT.  3. 

"In  the  construction  of  statutes  the  following  rules  shall  be  observed, 
unless  such  construction  would  be  inconsistent  with  the  manifest  intent  of 

the  general  court  or  repugnant  to  the  context  of  the  same  statute ;  that 

is  to  say, 

"  Sixteenth,  the  word  '  person '  may  extend  and  be  applied  to  bodies  politic 
and  corporate." 

As  to  whether  "  person  "  in  statute  includes  corporation  — 
"The  rule  would  seem  to  be,  that  primd  facie  it  does,  because  a  corpora- 
tion is  an  artificial  person  created  by  the  law ;  but  considerations  of  the  sub- 
ject, object,  and  connected  words  of  the  particular  statute  may  lead  to  the 
contrary  result." 

Bishop  on  Written  Laws,  s.  212. 


PEOPLE  v.   ALBANY   &  VERMONT  R.   CO. 

I860.     12  Abbott's  Practice  Reports  (N.  Y.),  171. 

Supreme  Court,  Third  District;  Special  Term,  Oct.  1860. 

Motion  to  punish  for  contempt. 

In  this  action  which  was  brought  to  restrain  the  defendants  from 
abandoning  a  part  of  their  railroad,  an  injunction  was  obtained  b}'  the 
plaintiffs,  forbidding  defendants  and  their  agents  from  taking  up  or 
removing  their  road,  or  selling  or  disposing  of  the  iron  forming  the 
track  thereof,  or  any  part  thereof,  except  such  as  were  unfit  for  use, 
and  necessarily  removed  in  repairs.  The  decision  of  the  court  in 
granting  the  injunction  is  reported  11  Ante,  136. 

The  plaintiffs  now  moved,  on  affidavits  that  a  part  of  the  track  had 
been  taken  up,  for  an  order  convicting  defendants  of  contempt  and  pun- 
ishing them  by  sequestration.  The  facts  which  appeared  in  relation  to 
the  alleged  breach  of  the  injunction  are  stated  in  the  opinion. 

J.  Gibson  and  John  H.  Reynolds,  for  the  motion. 

J.  B.  Gale  and  W.  A.  Beach,  opposed. 


448  PEOPLE   V.   ALBANY   AND   VERMONT   R.   CO. 

HOOEBOOM,  J.  The  proceeding  by  injunction  is  an  important  branch 
of  the  remedial  power  of  this  court.  It  operates  with  great  and  salu- 
tary effect  to  prevent  many  public  and  private  injuries,  for  which  no 
other  equally  effective  and  comprehensive  remedy  exists. 

To  render  it  of  any  avail,  it  must  of  course  be  capable  of  being  en- 
forced. And  it  would  be  a  matter  of  serious  regret,  if,  in  all  cases 
where  the  power  to  issue  the  process  of  injunction  exists,  the  power  of 
compelling  obedience  to  it  did  not  also  exist.  I  cannot  believe  there 
is  such  a  solecism  in  the  law.  If  there  is,  it  deserves  immediate  atten- 
tion on  the  part  of  the  Legislature. 

Itjs  not  denied  that  an  injunction  may  issue  against  a  corporation. 
It  isT  every  day's  practice  to  issue  process  of  that  character.__^A-XDr- 

pnrn.tinn  ia  an  n.nr.nn.1    pvist.pnfi 

person; It  is  an  artificial  being,  it  istrue,  but  it  can  act,  and  fre- 
quently with  great,  and  it  may  be,  with  ruinous  effect.  It  is  conceded 
it  ma}',  by  the  courts,  in  a  proper  case,  be  restrained  from  acting  — 
that  is,  be  ordered  not  to  act  in  a  given  way. 

Is  it  possible  that  this  order  cannot  be  enforced?  Are  courts  so  im- 
potent, is  the  law  so  defective,  that  the  order  of  the  court  cannot  be 
carried  into  effect  against  the  offending  party?  It  would  be  a  gross 
reflection  upon  the  law  of  the  land  if  this  were  so. 

It  is  not  so.  The  power  that  makes  the  order  can  enforce  it.  The 
part}'  who  disobeysthe  order  may  be  punished  for  Jt.  I  acknowledge 
no~  exception  to  therule. For  this  purpose,  the  court  is  the  govern- 
ment ;  the  representative  of  the  people ;  the  embodiment  of  the  law. 
Every  person  within  its  jurisdiction,  high  or  low,  natural  or  artificial, 
is,  in  a  proper  case,  subject  to  its  power,  and,  in  case  of  disobedience, 
amenable  to  punishment. 

It  is  no  answer  to  say  that  the  act  of  the  corporation  is  Tnn.nifpfitGiL 
and  carried  into  effect  by  individuals,  and  that  thosejjersons  are  always 
liable  to  the  process  of  the  law,  and  may  be  punished,  and  therefore  an 
"Injured  party  has  always  the  means  of  redress.  It  is  a  poor  cornpli- 
ment  to  the  law  to  sav  that  while  the  principal  is  tb<v  real  offender, 
though  you  cannot  reach  him,  you  can  reach  his__ agenly  —  bis  instru- 
ment. Besides,  the  agent  may  be  entirely  irre8ponsible,or  compara- 
tively innocent^.. 

And  why  cannot  a  corporation  be  punished  for  contempt?  It  is  said 
because  it  cannot  be  attached,  that  is,  personally  seized  or  taken.  This 
shows  no  sufficient  reason.  In  the  former  equity  practice,  it  sometimes 
became  necessary  to  order  a  corporation  to  answer  a  bill  in  chancery. 
If  it  refused,  it  was  not  strictly  attached,  as  a  natural  person  would  be, 
but  a  distringas,  or  writ  authorizing  a  distress  upon  its  property,  was 
issued ;  this  failing,  a  second,  and  sometimes  a  third,  wasTissuecirand, 
if  all  these  were  insufficient,  then  process  of  sequestration  was  issued 
against  it,  and  its  property  sequestered  for  the  benefit  of  the  aggrieved 
party.  (1  Barb.  Ch.  76.)  Why  may  not,  prooaaa^of  seqiiRstration  J)6 
issued  against  it,  to  punish  it  for  contempt  in  violating  an  injunction, 


•  PEOPLE    V.   ALBANY   AND   VEKMONT   E.    CO.  449 


as  well  as  contempt  in  refusing  to  answer?  Why  may  it  not  be 
for  the  contempt,  and  the  line  collected  in  the  ordinary  way?  Cor- 
porations a  nToTten  i  ucTicted  for  neglect  of  duty,  or  for  positive  misfeas- 
ance, and  the  punishment,  upon  conviction,  is  by  the  imposition  of  a 
fine.  The  punishment  by  fine  for  a  contempt  is  one  of  the  usual  modes 
of  punishment,  and  directly  recognized  by  statute.  (2  Rev.  Stat.  538.) 
So,  also,  the  sequestration  of  property  is  recognized  among  the  ele- 
mentary writers  ;  and  in  adjudicated  cases,  as  an  appropriate  and  law- 
ful mode  of  punishment  for  a  contempt.  (2  Barb.  Ch.  280  ;  Van, 
Santv.  Eq.  Pr.  635  ;  People  v.  Rogers,  2  Paige,  103  ;  Lupton  v. 
Hescott,  1  Sim.  &  Stew.  274.) 

It  is  quite  true,  as  before  stated,  that  the  parties  directly  guilty,  in 
their  own  persons,  of  a  violation  of  the  injunction,  may  be  punished. 
That  ma}-  be  necessary  or  expedient  to  be  done  ;  but  that  may  not  be 
enough  ;  it  may  be,  and  often  is,  quite  proper  that  the  principal  offen- 
der, who  sets  on  foot  the  violation  of  the  injunction,  should  be  punished 
and  made  to  feel  the  power  of  the  law. 

Nor  is  it  any  answer  to  say  that  thus  the  innocent  stockholders  may 
suffer  for  the  offensive  or  unlawful  acts  of  the  directors  of  a  corpo- 
ration. That  is  always  so  ;  that  is  incident  to  the  very  nature  of  a  cor- 
poration. The  directors  are  the  agents  of  the  stockholders,  appointed 
by  them,  and  thg^  likp  all  nt.hprs  who  appoint  nnwnrthv  OT  JndJS- 
creet  agents,  must  take  the  consequences  of  their  own  unfortunate 
selection. 

I  cannot  coincide  in  the  opinion  expressed  by  the  late  Mr.  Justice 
Duer,  of  the  Superior  Court  of  New  York,  in  Davis  v.  Mayor,  &c., 
of  N.  Y.  (1  Duer,  484),  as  to  the  inefficiency  of  this  process  upon  the 
corporation  itself.  It  is  true  that  a  corporation  cannot  be  personally 
attached  or  apprehended  ;  but  I  do  not  agree  that  there  are  no  means 
by  which  its  obedience  to  an  injunction  can  be  compelled,  or  its  dis- 
obedience punished  ;  or  that,  as  to  the  corporation  itself,  the  injunc- 
tion is  a  mere  brutumfulmen.  On  the  contrary,  I  think  the  means  of 
punishment  are  within  the  reach  of  the  court,  and  though  not  probably 
quite  so  effective  as  in  the  case  of  a  natural  person  (for  imprisonment 
cannot  be  resorted  to),  yet  they  are  sufficiently  so  in  most  cases  to 
effect  the  desired  object.  Much  of  the  supposed  impunity  of  corpora- 
tions, as  such,  from  punishment  for  contempt,  when  spoken  of  in  the 
elementary  treatises  on  this  subject,  is  founded,  I  think,  upon  the  idea 
that  the}1  cannot  be  attached,  from  which  it  by  no  means  follows  that 
other  modes  of  punishment  ma}-  not  be  administered. 

Substantially  the  same  views  which  I  have  here  expressed  are  taken 
in  a  recent  treatise  on  equity  practice.  (  Van  Santv.  Eq.  Pr.  641.) 
The  author  states,  indeed,  that  a  corporation  is  not  amenable  to  pro- 
cess of  contempt;  but  he  holds  further,  that  "  a  corporation,  not  being 
amenable  to  process  of  contempt,  may  be  proceeded  against  by  writ  of 
sequestration  ;  "  and,  by  statute,  this  process  is  explicitly  authorized 
against  a  corporation  upon  the  return  of  an  execution  unsatisfied  upon 

29 


450  PEOPLE   V,   ALBANY  AND   VERMONT   R.   CO. 

a  judgment  at  law  or  decree  in  equity.    (2  JKev.  Stat.  463  ;  Van  Santv. 
Eq.  Pr.  646.) 

I  am  satisfied,  therefore,  of  the  power  of  the  court  to  punish  a  cor- 
poration for  a  wilful  disobedience  of  the  order  of  the  court ;  but  I  am 
not  satisfied  that  in  this  case  the  evidence  is  sufficient  to  convict  the 
defendants  of  a  violation  of  the  injunction. 

[Omitting  remainder  of  opinion. ] 


MONUMENT   NAl'L   BANK  V.   GLOBE   WORKS.  451 


CHAPTER  XIV. 
EFFECT  OF  ULTRA   VIRES  TRANSACTIONS. 


SECTION   I. 

Transaction  within  the  apparent  Authority  of  the  Corporation, 
and  rendered  Ultra  Vires  only  by  Reason  of  the  Purpose 
entertained  by  the  Corporation,  or  by  other  extrinsic  Facts. 

MONUMENT  NAT'L  BANK  v.   GLOBE  WORKS. 

1869.     101  Mass.  57. 

HOAR,  J.  The  single  question  presented  for  our  decision  in  this 
cause,  all  others  which  arise  upon  the  report  having  been  waived,  is, 
whether  the  note  of  a  manufacturing  corporation,  in  the  hands  of  a 
holder  in  good  faith  for  value,  who  took  it  before  maturity,  and  without 
any  knowledge  that  the  makers  had  not  received  the  full  consideration, 
cannot  be  enforced  against  tKem,  because  it  was  in  fact  made  as  an  ac- 
commodation note. 

The  argument  for  the  defendants  takes  the  ground  that  to  issuejm 
accommodation  note  is  not  within  the  powers  conferred  upon  th(Tcor- 
poration  ;  and  that,  as  any  persons  taking  it  had  notice  that  it  was  the 
note  of  the  corporation,  the}'  had  notice  that  it  was  of  no  validity  unless 
issued  for  a  purpose  within  the  scope  of  the  corporate  powers,  and  were 
therefore  bound  to  ascertain  not  only  that  it  was  executed  by  the  officer 
of  the  corporation  who  had  the  general  authority  to  sign  the  notes  which 
they  might  lawfully  make,  but  that  the  purpose  for  which  it  was  issued 
was  such  as  the  charter  authorized  them  to  entertain  and  execute. 

The  court  are  all  of  opinion  that  this  position  is  not  tenable,  and  that 
the  defence  cannot  be  maintained. 

It  has  long  been  settled  in  this  Commonwealth  that  a  manufacturing 
f  nrpnratinn  FTaa  t.ha  pnwpr  tamafrpj^noprntiflblft  promissory  Dote.  ~Nar- 
Taganseit  Bank  v.  Atlrmfic~7tittTdo73  Met.  282.  And  it  was  held  in 
Bird  v.  Daggett,  97  Mass.  494,  as  a  just  corollary  to  that  proposition, 
that  such  a  note  in  the  hands  of  a  holder  in  good_faith  for  value  is  bind- 
ing lipon  the  makerraltbough  made  as  an  accommodation  note.  TEe 


452  MONUMENT   NAT'L   BANK  V.   GLOBE   WORKS. 

question  was  not  discussed,  nor  the  reasons  for  the  decision  fulty  stated, 
in  Bird  v.  Daggett ;  but  it  was  assumed  that  the  doctrine  announced 
was  clear  and  undoubted  law. 

The  doctrine  of  ultra  vires  has  been  carried  much  farther  in  England 
than  the  courts  in  this  country  have  been  disposed  to  extend  it ;  but, 
with  just  limitations,  the  principle  cannot  be  questioned,  that  the  limi- 
tations to  the  authority,  powers  and  liability  of  a  corporation  are  to  be 
found  in  the  act  creating  it.  And  it  no  doubt  follows,  as  claimed  by 
the  learned  counsel  for  the  defendants,  that  when  powers  are  conferred 
and  defined  by  statute,  every  one  dealing  with  the  corporation  is  pre- 
sumed to  know  the  extent  of  those  powers. 

But  when  the  transaction  is  not  the  exercise  of  a  power  not  conferred 
on  a  corporation,  but  the  abuse  of  a  general  power  in  a  particular  in- 
stance, the  abuse  not  being  known  to  the  other  contracting  party,  the 
doctrine  of  ultra  vires  does  not  apply.  As  was  said  by  Selden,  J.,  in 
Bissell  v.  Michigan  Southern  &  Northern  Indiana  Railroad  Co,  22 
N.  Y.  289,  290 :  "  There  are  no  doubt  cases  in  which  a  corporation 
would  be  estopped  from  setting  up  this  defence,  although  its  contract 
might  have  been  really  unauthorized.  It  would  not  be  available  in  a  suit_ 
brought  by  a  bonafide  indorsee  of  a  negotiable  promissory  note,  provided 
thecorporation  was  authorized  to  give  notes  for  any  purpose ;  and  the  rea- 
son is,  that  the  corporation,  by  giving  the  note,  has  virtually  represented 
that  it  was  given  for  some  legitimate  purpose,  and  the  indorsee  could 
not  be  presumed  to  know  the  contrary.  The  note.,  jiowever,  if  given 
by  a  corporation  absolutely  prohibited  by  its  charter  from  giving  notes 
at  all,  would  be  voidable  not  01113"  in  the  hands  of  the  original  pa3"ee, 
but  in  those  of  an3"  subsequent  holder  ;  because  all  persons  dealing  with 
a  corporation  are  bound  to  take  notice  of  the  extent  of  its  chartered 
powers.  The  same  principle  is  applicable  to  contracts  not  negotiable. 
When  the  want  of  power  is  apparent  upon  comparing  the  act  done  with 
the  terms  of  the  charter,  the  party  dealing  with  the  corporation  is  pre- 
sumed to  have  knowledge  of  the  defect,  and  the  defence  of  ultra  vires 
is  available  against  him.  But  such  a  defence  would  not  be  permitted 
to  prevail  against  a  party  who  cannot  be  presumed  to  have  had  an3T 
knowledge  of  the  want  of  authority  to  make  the  contract.  Hence,  if 
the  question  of  power  depends  not  merety  upon  the  law  under  which 
the  corporation  acts,  but  upon  the  existence  of  certain  extrinsic  facts, 
resting  peculiarly  within  the  knowledge  of  the  corporate  officers,  then 
the  corporation  would  be  estopped  from  denying  that  which,  by  assum- 
ing to  make  the  contract,  it  had  virtually  affirmed." 

This  doctrine  seems  to  us  sound  and  reasonable ;  and  in  conformity 
with  it,  it  was  held  in  Farmers'  &  Mechanics'  Bank  v.  Empire  Stone 
Dressing  Co.  5  Bosw.  275,  that  an  accommodation  acceptance  by  an 
officer  of  a  manufacturing  corporation,  on  behalf  of  the  company,  was 
not  binding,  unless  the  consideration  had  been  advanced  upon  the  faith 
of  the  acceptance  ;  but  that  if  the  consideration  was  paid  in  good  faith 
after  the  acceptance,  and  upon  the  credit  of  it,  it  could  -be  enforced. 


LEAZURE   V.   HILLEGAS.  453 

So  it  was  said  by  Lord  St.  Leonards  that  he  felt  a  disposition  "  to 
restrain  the  doctrine  of  ultra  vires  to  clear  cases  of  excess  of  power, 
with  the  knowledge  of  the  other  part}*,  express  or  implied  from  the 
nature  of  the  corporation,  and  of  the  contract  entered  into."  Eastern 
Counties  Railway  Co.  v.  Hawkes,  5  H.  L.  Cas.  331,  373. 

The_casesou  which  the  defendants  rely  are  cases  against  municipal 
corporations,  in  respect  to  which  the  rule  is  much  more  rigid,  or  for  the 
most  part  those  in  which  the  other  contracting  part}'  had  notice  upon 
the  face  of  the  transaction  of  the  want  of  corporate  power. 

There  ~caiTT)e  no  doubt  that  it  is  very  often  true  that  a  corporation 
may  be  responsible  for  the  unauthorized,  and  even  for  the  unlawful 
acts  of  its  agents,  apparently  clothed  with  its  authority.  No  cor- 
poration is  empowered  by  its  charter  to  commit  an  assault  and  battery  ; 
yet  it  has  frequently  been  held  accountable,  in  this  Commonwealth,  for 
one  committed  by  its  servants.  Bills  of  a  bank  issued  without  consid- 
eration, and  even  stolen,  are  good  in  the  hands  of  an  innocent  holder 
for  value.  Many  other  illustrations  might  be  given,  but  enough  has 
been  said  to  show  the  principle  on  which  our  decision  rests. 

Judgment  for  the  plaintiffs. 

R.  H.  Dana,  Jr.,  &  T.  K.  Lothrop,  for  the  defendants. 

C.  A.  Welch  &  W.  W.  Warren,  for  the  plaintiffs. 


SECTION  II. 

Executed  Transfers  to,  or  from,   Corporation  in  Excess  of 
Charter  Authority. 

LEAZURE  v.   HILLEGAS. 

1821.     7  Sergeant  $•  Rawle  (Pa.),  313.1 

ERROR  to  the  Common  Pleas  of  Bedford  County. 

Frederick  Hillegas,  the  plaintiff  below,  (who  is  defendant  in  error), 
claimed  the  land  in  dispute  under  a  warrant  and  survey  to  Thomas 
Holt,  who  conveyed  to  George  Armstrong,  who  conveyed  to  William 
Henry,  who  conveyed  to  the  Bank  of  North  America,  who  conveyed 
to  James  Ross,  who  conveyed  to  the  Plaintiff.  On  the  trial  several 
exceptions  were  taken  to  the  opinion  of  the  Court  on  points  of  evidence. 

Tod,  for  plaintiff  in  error. 

J.  Riddle  and  Thompson,  for  defendant  in  error. 

TILGHMA.N,  C.  J. 

1  Statement  abridged.     Arguments  and  part  of  opinion  omitted.  —  ED. 


454  LEAZURE  V.   HILLEGAS. 

The  third  exception  was,  to  the  admission  of  the  deed  from  the 
Bank  of  North  America  to  James  Ross,  to  which  there  were  two 
objections,  first,  that  there  was  no  evidence  of  the  seal  of  the  corpora- 
tion ;  and  second,  that  the  corporation  was  incapable  of  receiving  a 
conveyance  of  land,  otherwise  than  by  mortgage,  and  therefore  had  no 
estate  which  could  be  conveyed.  The  first  exception  [objection]  was 
good. 

But  the  great  points  in  this  cause  are,  the  capacity  of  the  bank  to 
take  the  land  conveyed  by  William  Henry's  deed,  and  afterwards  to 
convey  the  same  to  James  Ross.  There  is  no  doubt  that  a  corporation 
must  be  governed  by  the  charter,  froin  which_it  derives  its  existence. 
It  can  do  no  actTnor  take  any  estatejcontrary  to  itsjsharterT^  If  there- 
fore it  can  Fe  shown^isiXrttiG~Ban&  of  North  America*,  is  forbidden 
by  its  charter,  either  to  take,  or  to  convey,  the  land  contained  in 
William  Henry's  deed,  the  plaintiff's  action  cannot  be  supported.  By 
the  3d  section  of  the  Act  of  Incorporation,  (17th  of  March,  1787,  2  Sm. 
L.  399,)  the  bank  is  made  capable  "to  have,  hold,  purchase,  receive, 
possess,  enjoy,  and  retain,  lauds,  rents,  tenements,  goods,  chattels, 
and  effects  of  whatsoever  kind,  nature  or  quality,  to  the  amount  of  two 
millions  of  dollars  and  no  more,  and  also  to  sell,  grant,  &c.  the  same 
lands,  &c.  Provided  nevertheless,  that  such  lands  and  tenements, 
which  the  said  corporation  are  hereby  enabled  to  purchase  and  hold, 
shall  onl}-  extend  to  such  lot  and  lots  of  ground,  and  convenient  build- 
ings, and  improvements  thereon  erected  or  to  be  erected,  which  they 
may  find  necessary  and  proper  for  carrying  on  the  business  of  the  said 
bank,  and  shall  actually  occupy  for  that  purpose,  and  to  such  lands 
and  tenements  which  are  or  may  be  bona  fide  mortgaged  to  them  as 
securities  for  their  debts".  It  is  remarkable,  that  with  regard  to  the 
holding  of  lands,  the  charter  of  this  bank  is  more  restricted  than  that 
of  any  other  bank  in  the  State,  for  all  the  others  are  enabled  to  hold, 
not  only  the  lands  which  have  been  bona  fide  mortgaged  to  them  by 
way  of  security  for  debts,  but  also  those,  "  which  may  be  conveyed  to 
them  in  satisfaction  of  debts  previously  contracted  in  the  course  of 
their  business,  or  purchased  at  sales  upon  judgments  which  shall  have 
been  obtained  for  such  debts."  This  difference  of  restriction,  must 
have  arisen  from  the  extreme  jealousy  of  monied  corporations  which 
pervaded  the  mind  of  the  Legislature  when  the  Bank  of  North  America 
was  incorporated.  It  never  could  have  been  intended  to  place  that 
bank  on  a  worse  footing  than  others,  for  it  was  the  only  one,  which 
risked  its  capital  on  a  field  altogether  untried  in  America,  and  which 
had  the  merit  of  rendering  essential  service  to  the  United  States, 
during  the  war  of  the  revolution.  It  would  be  improper  therefore,  to 
carry  the  restriction,  by  construction,  farther  than  the  words  of  the  law 
plainly  import.  The  restriction  is,  that  the  bank  shall  not  purchase 
and  hold.  Purchasing  and  holding,  are  very  different  things,  and 
the  consequences  of  each  are  very  different.  If  the  words  had  been, 


LEAZURE   V.   HILLEGAS.  455 

that  the  bank  should  neither  purchase  nor  hold,  then  it  could  have  done 
neither  one  nor  the  other.  But  although  purchasing  and  holding 
might  have  been  thought  dangerous,  because  of  the  power  which  it 
would  have  given  the  bank  to  bring  too  much  land  into  mortmain,  yet_ 
to  purchase,  subject  to  the  statutes  of_mortmain,  wbichjaujhorised  the 
Commonwealth  to  appropriate  the  land  to  its  own  use,  could  be  attended 
with  no  danger.  TMs^consTruction  would  satisfy  the  jealous  policy  of 
the  .Legislature,  preserve  the  community  from  the  danger  of  too  great 
a  mass  of  real  property  held  in  mortmain,  and  at  the  same  time  put  it 
in  the  power  of  the  Commonwealth  to  act  towards  the  bank,  as  justice 
might  seem  to  require.  This  is  a  consideration  of  no  small  importance  ; 
for  when  the  directors  of  the  bank  accepted  from  William  Henry,  a 
conveyance  of  his  land  at  a  fair  price,  in  payment  of  a  debt  bona  fide 
due,  it  would  be  hard  to  presume,  that  they  knew  they  were  acting  in 
violation  of  their  charter.  But  granting  that  the  restriction  in  the 
charter,  did  not  extend  to  the  simple  act  of  purchasing,  it  may  be 
asked,  whence  did  the  corporation  derive  the  right  to  purchase,  and 
what  would  be  the  situation  of  land  purchased,  without  a  capacity  of 
holding.  The  ongrop^Jgj  that.  Q  ^rporation  has,  from  its  nature,  a 
right  to  purcKase~lsinds,  jbougb_tlie_eharter  contains  no  license  to  that 
purpose.  And  in  this  respect  the  statutes  ^T  mortmainTh&vs  not 
altered  the  law,  except  in  case  of  superstitious  uses.  But  since  those 
statutes,  it  is  necessary,  in  order  to  enable  a  corporation  to  retain 
lands  which  it  has  purchased,  to  have  a  license  for  that  purpose ;  other- 
wise, in  England,  the  next  lord  of  the  fee  may  enter  within  a  year 
after  the  alienation,  and  if  he  do  not,  then  the  next  immediate  lord, 
from  time  to  time,  has  half  a  year  to  enter,  and  for  default  of  all  the 
mesne  lords,  the  king  takes  the  land  so  aliened,  for  ever.  That  this  is 
the  law  appears  from  the  following  authorities.  2  Black.  Com.  268, 
269.  Co.  lit.  2.  6  Vin.  Ab.  265.  (G.  pi  2.)  id.  266.pl.  8.  Jenk. 
Cent.  270.  3  Com.  Dig.  399.  (F.  10.)  id.  401.  (F.  15.)  1  Mol 
Ab.  513.  1.  35.  10  Co.  30.  But  in  Pennsylvania,  where  there  are 
no  mesne  lords,  the  right  would  accrue  immediate!}'  to  the  Common- 
wealth. It  has  been  objected  however,  that  according  to  the  report  of 
the  Judges  of  this  Court,  made  on  the  14th  December,  1808,  in  pur- 
suance of  an  Act  of  Assembly  requiring  them  to  make  a  report  of  the 
English  statutes  which  are  in  force  in  the  Commonwealth,  &c.,  it 
appears,  that  all  conveyances  of  land  to  a  corporation,  without  license, 
are  absolutely  void.  I~wTll  consider  this  objection.  The  Judges  re- 
ported "tlieToTIo  wing  statutes  of  mortmain,  "7  Ed.  I.  (Stat.  2.)  13  Ed. 
I.  ch.  32.  15  Rich.  II.  ch.  5,  and  23  Hen.  VIII.  ch.  10 ;  which  are  in 
part  inapplicable  to  this  countiy,  and  in  part  applicable,  and  in  force. 
They  are  so  far  in  force,  that  all  conveyances  by  deed  or  will,  of  lands, 
tenements,  or  hereditaments,  made  to  a  body  corporate^  are  void, 
unless  sanctioned  by  charter  or  Act  of  Assembly.  So  also  are  all  such 
conveyances  void,  made  either  to  an  individual,  or  to  any  number  of 
persons  associated,  but  not  incorporated,  if  the  said  convej^ances  are 


456  LEA.ZURE   V.    HILLEGAS. 

for  uses  or  purposes  of  a  superstitious  nature,  and  not  calculated  to 
promote  objects  of  charit}*  or  utility."  I  have  quoted  the  words  of  the 
report,  and  it  is  evident  that  the  Judges  could  have  no  intent,  nor  had 
they  power  to  make  any  addition  to  the  statutes,  or  in  any  manner  to 
alter  them.  Now  by  reference  to  the  statutes,  it  will  appear,  that  in 
all  of  them,  except  the  23  Hen.  VIII.  ch.  10  ;  the  conveyance  is  not 
g-hgolntajj  void,  ]>nt  the  estate  passes  to  the_gj)rj3C^ation^jsj^ect  _as 
before  mealiQiifij^jto^thejjght  of  the  several  mesne  lords,  and  in  their 
default!  of  ..tb£-kingi_to  enter  and  hold  jn~lee.  But  lay  the  statute  of 
23  \  Hen.  VIII.  ch.  10,  (which  has  been  determined  to  extend  to  super- 
stitious uses  only,  see  2  Black.  Com.  273.  1  Co.  Hep.  24,)  uses  and 
trusts,  made  and  contrived  in  favour  of  religious  persons,  or  any  bodies 
corporate,  for  more  than  twenty  years,  shall  be  utterly  void.  Now  the 
meaning  of  the  report  of  the  Judges  is,  that,  according  tp__the..statiita. 
cited  by  them,  conveyances  to  superstitious  uses,  are^  absolutely  void  , 
mid  conveyances  to  corporations,  to  uses  not  superstitious,  are  so  far 
void,  that  those  corporations  shall  have  no  capacity  to  hold  the  estates 
for_  their  own  benefit,  but  subject  to  the  right  of  the  Commonwealth^ 
who  mayappropriate  them  tojt3_own  use  at  pleasure  ;  in  other  wordal 


thaTsiiclTcbnveyanees  have  no  validity  for  the  .pnrpnsp. 
corporation  to  hold  in  mortmain.  But  to  support  the  plaintiffs  title, 
it  must  be  shewn  that  the  corporation  had  power,  not  only  to  take  by 
purchase,  but  to  alien.  Inthis  respect  I  consider  a  corporation  in  the 
situation  of  an  alien,  who  has  power  to  take,  but  noiTto  hold.  That  an 
alien  ~may~take  by  purchase,  (though  not  by  descent,)  has'  been  settled 
from  the  earliest  times.  It  is  so  laid  down  in  Co.  Lit.  2,  and  I  believe 
has  never  been  questioned.  Neither  has  it  been  questioned,  that  the 
land  is  subject  to  forfeiture,  and  may  be  seised  for  the  king,  after  office 
found.  But  it  has  been  questioned,  what  is  the  right  of  the  alien 
before  office  found  for  the  king.  Without  reference  to  English  cases, 
which  leave  the  matter  in  doubt,  we  have  the  highest  authority  in  our 
own  country  for  saying,  that  until  some  Act  done  by  the  Cominon- 
wealth  according  to  its  own  laws,  to  vest  the  estate  in  itself,  it  remains 
in  the  alien,  who  may  convey  it  to  a  purchaser,  but  he  can  convey  no 
estate  which  is  not  defeasible  by  the  Commonwealth.  This  principle 
waif  asserted  by  Judge  STORY,  who  delivered  the  opinion  of  the  Supreme 
Court  of  the  United  States,  in  the  case  of  Fairfax's  Devisee  v.  Hunter's 
Lessee,  7  Cranch,  603  ;  and  this  was  the  opinion  of  the  Supreme  Court 
of  Massachusetts,  in  the  case  of  Sheafe  v.  O'Neil,  I  Mass.  Hep.  256, 
cited  by  Judge  STORY.  It  is  reasonable  in  theoty,  and  can  have  no  ill 
effect  in  practice,  that  he  who  has  a  defeasible  estate,  may  convey  a 
defeasible  estate.  Provided  the  right  of  the  Commonwealth  to  defeat 
the  estate  granted  by  the  alien  remains  entire,  it  is  immaterial  who 
holds  the  land  until  that  right  be  prosecuted.  Supposing  then,  that  the 
cases  of  the  alien,  and  the  corporation  be  similar,  (and  I  see  not  how 
they  can  be  distinguished,)  it  follows  that  the  deed,  from  the  Bank  of 
North  America  to  James  Itoss,  conveyed  a  fee  simple,  defeasible  by 


LONG  V.   GEORGIA   PACIFIC   R.   CO.  457 

the  Commonwealth.  The  counsel  for  the  plaintiff  did  indeed  contend, 
that  this  deed  might  be  considered  as  a  mortgage,  though  on  its  face  it 
appears  to  be  an  absolute  conveyance.  But  this  construction  cannot 
be  supported.  In  order  to  carry  the  intent  of  the  grantor  into  effect,  a 
deed  intended  to  operate  as  one  species  of  conveyance,  ma}*  be  construed 
to  operate  as  another,  provided  it  contain  words  sufficient.  But  it 
cannot  be  construed  so  as  to  destroy  the  intent  of  the  parties,  as  would 
be  the  case  b}-  holding  this  deed  to  be  a  mortgage  ;  for  it  was  the  clear 
intent  of  both  parties  to  make  an  absolute  sale,  and  not  a  mortgage. 
When  William  Henry  conveyed  the  lands  mentioned  in  his  deed,  it 
was  his  intent,  that  in  consideration  thereof,  the  debt  due  from  him  to 
the  bank  should  be  extinguished,  and  the  bank  agreed  to  accept  the 
conveyance  in  satisfaction  of  the  debt.  But  supposing  it  to  be  a  mort- 
gage, the  debt  would  be  extinguished,  and  Henry  would  still  remain 
responsible.  I  am  clearly  of  opinion  therefore,  that  it  was  not  a  mort- 
gage, but  an  absolute  conveyance. 

Upon  the  whole,  I  am  of  opinion,  that  there  was  error,  in  admitting 
the  deed  from  the  Sank  of  North  America  to  James  Ross  without 
proof  of  the  corporate  seal,  and  that  there  is  no  other  error  in  the 
record.  The  judgment  is  therefore  to  be  reversed,  and  a  venire  facias 
de  novo  awarded. 

Judgment  reversed,  and  a  venire  facias 
de  novo  awarded. 


LONG  v.   GEORGIA  PACIFIC  R.   CO. 

1890.     91  Alabama,  519.1 

MCCLELLAN,  J.  The  case  made  by  the  amended  bill  is  this :  On 
April  23,  1883,  the  complainant,  B.  M.  Long,  and  his  wife,  Amanda  C. 
Long,  executed  to  the  Georgia  Pacific  Railway  Co.  a  deed  upon  valuable 
consideration  presently  paid,  to  and  of  the  iron,  coal  and  oil  inter- 
ests and  properties  in  and  pertaining  to  certain  tracts  of  land,  aggre- 
gating about  four  thousand  acres  ;  the  said  Long  retaining  the  fee  to  said 
lands,  except  in  respect  to  said  mineral  interests,  and  continuing  in 
possession  thereof.  The  grantee  is  a  corporation,  and  was  and  is 
without  power  to  purchase  and  hold  said  land,  or  the  mineral  interests 
in  the  same.  The  bill  seeks  to  have  the  deed  declared  void,  because  of 
this  incapacity  of  the  corporation,  and  to  have  the  same  cancelled  as  a 
cloud  upon  complainant's  title.  The  bill  was  demurred  to  on  several 
grounds,  and  the  demurrer  was  sustained  generally,  the  decree  to  that 
end  being  now  assigned  as  error. 

1  Statement  and  arguments  omitted.  —  ED. 


458  LONG   V.   GEORGIA   PACIFIC   R.   CO. 

Only  those  grounds  of  error  which  present  the  question,  whether  a 
vendor  who  has  sold,  received  pa}'nient  for,  and  conveyed  land  to  a 
corporation,  which  had  no  power  to  hold  the  same,  can  have  any  relief 
in  respect  to  the  transaction,  are  discussed  in  argument ;  and  to  these 
our  consideration  will  be  confined,  since  it  is  manifest  that  the  deter- 
mination of  this  question,  in  line  with  the  decree  below,  as  we  think  it 
must  be  determined,  will  be  fatal,  not  only  to  the  present  appeal,  but 
to  complainant's  cause  of  action. 

It  is  thoroughly  well  settled  law,  that  a  part}'  to  an  ultra  vires  execu- 
tory contract  made  with  a  corporation  is  not  estopped  to  set-up  the 
want  of  corpora le  capacity  in  tne  premises,  eitner  by  the  fact  of  con- 
tracting^ whereby  the  power  to  contract  is,  in  a  sense,  admitted  or 
recognized,  or  by  thejact  th^Ljhe_fruto_orJgs^s~o^f  the~  contract  have 
been  received  n.nd.  ftnjnyeH  ;  anxLJjiis,  thoughlhe  assault  upon  the 
transaction  comes JVonvtlie  corpojaMoiLitseJil— Marion  Savings  Sank 
v.  Dunklin,  54  Ala.  471 ;  Chambers  v.  Falkner,  65  Ala.  448  ;  Sher- 
wood v.  Alvis,  83  Ala.  115  ;  Chewacla  Lime  Works  v.  Dismukes,  87 
Ala.  344.  But^where  the  contract  is  fully  executed  —  where  what- 


ever was  contracted  to  bedone  on  either  hand  has  been  done  —  a  dif- 
ferent role  prevails.^  In  such  case,  the  law  will  not  interfere,  at  the 
instance  of  either  party,  to  undo  that  which  it  was  originally  unlawful 
to  do,  and  to  the  doing  of  which,  so  long  as  the  contract  to  that  end 
remained  executory,  neither  party  could  have  coerced  the  other.  As 
declared  by  Mr.  Bishop,  "  the  parties  voluntarily  doing  of  what  they 
have  unlawfully  agreed,  places  them,  in  effect,  in  the  same  position  as  if 
the  contract  had  been  originally  good  ;  neither  can  recover  of  the  other 
what  was  parted  with.  The  reason  for  which  is.  that^  since  they  are 
equally  in  fault,  the  lawjyill  help  neither."  —  Bishop  on  Contracts, 
§627. 

The  former  decisions  of  this  court  are  in  line  with  this  doctrine,  and 
fully  recognize  the  distinction  between  executory  and  executed  void 
contracts,  to  the  effect  that,  while  suits  to  enforce  the  former  ma}r 
always  be  defended  on  the  ground  of  their  invalidit}-,  no  relief  prayed 
upon  such  ground  can  be  granted  with  respect  to  the  latter.  —  Morris 
v.  Hale,  41  Ala.  510 ;  Ingersoll  v.  Campbell,  46  Ala.  282 ;  Sherwood  v. 
Alvis,  83  Ala.  115;  Dudley  v.  Collier,  87  Ala.  431;  Craddock  v. 
Mortgage  Co.,  88  Ala.  281.  And  this  is  the  doctrine  generally  declared 
by  other  courts.  —  Thomas  v.  Railroad  Co.,  101  U.  S.  71  ;  Day  v.  S. 
S.  If.  Co.,  57  Mich.  146  ;  s.  c.,  52  Amer.  Rep.  352 ;  Parish  v.  Wheeler, 
22  N.  Y.  494 ;  Miners'  Ditch  Co.  v.  Tellerbach,  37  Cal.  542,  606  ; 
Terry  v.  Eagle  Lock  Co.,  47  Conn.  141. 

There  is  no  question  but  that  the  case  presented  by  the  bill  involved 
a  contract  on  the  part  of  the  railway  company  to  buy,  and  on  the  part 
of  the  complainant  to  sell,  certain  interests  in  the  land  described.  It 
is  equally  clear  that  the  payment  of  the  agreed  price  on  the  one  hand, 
and  the  execution  of  the  conveyance  on  the  other,  fully  executed  this 
contract  on  both  sides,  left  nothing  to  be  done  by  either  party  in  the 


FAVETTE  LAND  CO.  V.  LOUISVILLE  AND  NASHVILLE  R.  CO.   459 

premises,  and  bring  the  transaction  within  the  principle  we  have  been 
considering,  which  denies  to  the  complainant  an}'  relief  in  respect  to  it. 

The  same  conclusion  is  reached  by  another  well  established  prin- 
ciple. It  is,  that  when  a  party  sells  and  convej's  property  to  a  corpora- 
tion,  which  is  without  power  to  purchase  .and  hold  the  same,  and 
receives  compensation  therefor,  there  being  no  fraud  in  the  transaction, 
he  is  in  no  sense  injured  or  prejudiced  by  the  incapacity  of  the  corpora- 
tion,  nor  can He  be  heard  tocomplain  of  it;  but  the  question  becomes, 
one  between  the  corporatiorTand  the  State,  the  sovereign  alone  having 
the  right  to  impeach  the  transaction ;  and  until  it  supervenes  for  this 
purpose,  the  corporation  is  vested  with  perfect  title  against  all  the 
world,  defeasible  only  on  office  found.  —  R.  &  B.  Railroad  Co.  v. 
Proctor,  29  Vt.  93 ;  Leazure  v.  Hillegas,  7  Serg.  &  Rawle,  313 ; 
Goundiev.  Northampton  Water  Co.,  1  Pa.  St.  233  ;  Baird  v.  Bank  of 
Washington,  11  Serg.  &  Rawle,  411  ;  Lathrop  v.  Bank,  8  Dana,  114, 
129  ;  Hough  v.  Cook  County  Land  Co.,  73  111.  23  ;  s.  c.,  24  Amer. 
Rep.  230 ;  Cowles  v.  Springs  Co.,  100  U.  S.  55 ;  Reynolds  v.  Craw- 
fordsville  Bank,  112  U.  S.  405,  413  ;  2  Mor.  Corp.  §  710. 

The  decree  of  the  chancellor  is  affirmed ;  and  the  same  result  is 
reached  in  the  case  of  B.  L.  Jones  and  B.  B.  Long  v.  Ga.  Pac.  Railway 
Co.,  submitted  with  this  case,  and  involving  the  same  question. 

Affirmed. 


FAYETTE  LAND  CO.  v.  LOUISVILLE  &  NASHVILLE  R.  CO. 

1896.     Supreme  Court  of  Appeals  of  Virginia?- 

APPEAL  from  Circuit  Court. 

Bill  in  equity  by  L.  &  N.  R.  Co.  against  Fayette  Land  Co.  et  als., 
to  enforce  payment  for  land  sold  by  plaintiffs  to  defendants.  In  1888, 
Flanary  and  wife  conveyed  to  H.  M.  Smith,  agent,  a  tract  of  330  acres 
in  Wise  County,  Va.  In  this  transaction  Smith  was  acting  as  agent  for 
the  L.  &  N.  R.  Co.  In  1890  the  L.  &  N.  R.  Co.  conveyed  to  the 
Fayette  Land  Co.  this  tract,  reserving  a  right  of  way  and  a  depot  site. 
One  third  of  the  purchase  money  was  paid  down.  The  remainder  was 
payable  in  1891  and  1892  ;  and  the  vendor  retained  a  lien  on  the  land 
conveyed.  H.  M.  Smith  united  in  the  deed  to  the  Fayette  Land  Co. 
The  bill  avers  that  the  balance  of  the  purchase  money  is  still  unpaid, 
and  prays  that  the  defendant  company  may  be  required  to  pa}'  it.  Such 
proceedings  were  had  that  the  Circuit  Court  entered  a  decree  in  favor  of 
plaintiff  for  the  balance  claimed. 

1  From  copy  of  opinion  furnished  by  State  Reporter.  Only  so  much  of  the  case  is 
given  as  relates  to  one  point.  —  ED. 


460      FAYETTE   LAND  CO.   V.   LOUISVILLE   AND   NASHVILLE   E.    CO. 

J.  H.  Fulton,  E.  M.  Fulton,  E.  C.  Minor,  and  R.  T.  Irvine,  for 
appellant. 

J.  F.  Bullett,  Jr.,  and  H.  C.  McDowell,  Jr.,  for  appellee. 

KEITH,  P.  [After  stating  the  case,  and  disposing  of  other  assign- 
ments of  error.] 

These  preliminary  matters  having  been  disposed  of,  we  come  now  to 
the  seventh  assignment  of  error,  which  is  that  the  court  erred  in  giving 
a  decree  against  the  appellants  on  the  merits. 

The  Louisville  &  Nashville  R.  R.  Co.  is  a  Kentucky  corporation, 
authorized  by  an  act  of  Assembly  of  this  State,  approved  March  30, 
1887  (Acts  Extra  Session,  1887,  p.  19),  to  construct  and  operate  a 
line  of  railroad  in  Virginia.  By  that  Act  it  is  made  subject  to  all  the 
limitations  and  restrictions  imposed  by  the  laws  of  Virginia  upon  rail- 
road companies,  and  it  is  contended  by  appellant  that  Sec.  1073  of  the 
Code  of  1887,  which  is  as  follows :  — 

"  The  land  acquired  by  any  company  incorporated  for  a  work  of  in- 
ternal improvement  along  its  line  generally,  shall  not  exceed  one  hun- 
dred feet  in  width,  except  in  deep  cuts,  and  fillings,  and  then  only  so 
much  more  shall  be  acquired  as  may  be  reasonably  necessary  therefor ; 
the  lands  which  it  may  acquire  for  buildings  or  for  an  abutment  along 
its  line  generally,  shall  not  exceed  three  acres  in  any  one  parcel ;  and 
the  land  which  it  may  acquire  for  buildings,  or  other  purposes  of  the 
company  at  the  principal  termini  of  its  work,  or  any  place  or  places 
within  five  miles  of  such  termini,  shall  not  exceed  fifteen  acres  in  any 
one  parcel ;  but  in  the  case  of  a  railroad  company,  land  not  exceeding 
forty  acres  in  any  one  parcel  may  be  acquired  for  its  main  depots, 
machine  shops,  and  other  necessary  purposes  connected  with  the  busi- 
ness of  said  company," 

—  renders  the  appellee  incapable  of  acquiring  or  taking  title  to  the 
real  estate  set  out  and  described  in  its  bill,  and  .that  therefore  no  title 
passed  from  it  to  the  appellant,  but  tbatit_is_or_vyas  absolutelyjypid 
or  conveyed  at  moaLA_de feasible  title^  the  land  being  subject  even  in 
the  hands  of  an  alienee  from  a  railroad  company  to  be  escheated  to  the 
Commonwealth.  It  may  be  conceded  that  if  this  were  a  bill  for  specific 
performance  of  a  contract  that  the  relief  would  be  denied.  See  Case 
v.  Kelly,  133  U.  S.  21.  But  such  is  not  the  case.  The__agreejn£jit_of 
the  parties Jias_been^  fully  executed . 

Section  1068  declares  that: 

"  Every  corporation,  in  respect  to  which  it  is  not  otherwise  provided, 
shall  have  perpetual  succession  and  a  common  seal  .  .  .  ;  that  it  may 
contract  and  be  contracted  with,  purchase,  hold,  and  grant  estates,  real 
and  personal,  and  make  ordinances,  by-laws  and  regulations  .  .  .  for 
the  management  of  its  estates,  and  the  due  and  orderly  conducting  of 
its  affairs." 

This  section  is  but  declaratory  of  the  common  law. 

Section  1070  declares : 

"  No  incorporated  company  shall  hold  any  more  real  estate  than  is 
proper  for  the  purposes  for  which  it  is  incorporated,"  &c. 


FAYETTE   LAND   CO.   V.   LOUISVILLE   AND   NASHVILLE  R.   CO.      461 

This  again  is  but  a  recognition  of  the  common  law  principle. 

Section  1072  provides  the  mode  in  which  a  company  incorporated  for 
internal  improvement  may  enter  upon  land  for  the  purpose  of  examin- 
ing and  surveying  it. 

Section  1073  has  already  been  quoted  in  full. 

That  the  conveyance  of  this  land  to  the  Louisville  &  Nashville  R.  R. 
Co.  was  not  void  is  abundantly  established  by  authority. 

In  the  case  of  The  Banks  v.  Poitiaux,  3  Rand.  136,  it  appears  that 
the  banks  were  by  their  charters  authorized  to  hold  such  real  estate  "  as 
was  requisite  for  their  immediate  accommodation  in  relation  to  the  con- 
venient transacting  of  their  business."  Upon  the  lands  purchased  by 
the  banks  in  that  case  they  proceeded  to  erect  buildings  for  the  trans- 
action of  their  business,  and  on  either  side  of  the  buildings  so  erected 
there  remained  a  vacant  space,  which  the}*  sold  to  the  appellee ;  he 
failing  to  pay  as  agreed,  the  bank  filed  a  bill  for  specific  performance, 
and  the  chancellor  decreed  that  the  banks  had  exceeded  their  powers  in 
purchasing  and  selling  the  property  in  question,  it  not  being  necessary 
in  relation  to  the  transaction  of  their  business.  Upon  appeal  it  was 
held  that  while  the  power  to  acquire  may  be  limited,  restrained  or  pro- 
hibited, either  by  the  charter  creating  the  corporation  or  by  a  general 
law,  such  was  not  the  effect  of  the  charters  in  question,  because  the  acts 
creating  the  charters  are,  with  respect  to  the  quantity  of  real  estate 
which  they  were  capable  of  holding,  only  directory. 

"  The}*  impose  no  penalty  in  terms.  The}-  do  not  declare  the  pur- 
chase by,  or  conveyance  to,  the  banks  to  be  void,  nor  vest  the  title  in 
the  Commonwealth,  or  any  other  than  the  banks,  in  consequence  of 
such  purchase  and  conveyance.  The  legal  title  passed  to  the  banks 
by  the  conveyance  to  them,  and  their  conveyance  would  effectually 
transfer  that  title  to  any  other.  If,  in  making  the  purchase  of  the  land 
in  question,  the  banks  violated  their  charters,  the  corporation  might, 
for  that  cause,  be  dissolved  by  a  proceeding  at  the  suit  of  the  Com- 
monwealth;  and  even  in  that  case,  it  seems  to  be  the  better^  opinion, 
the  property,  if  not  previously  conveyed  to  some  other,  would  revert,  « 
upon  the  dissolution  of  the  corporation,  to  the  grantor,  and  not  to  the  I 
Commonwealth.  But,  any  conveyance  made  by  the  corporation,  before 
its  dissolution,  would  be  effectual  to  pass  its  title.  The  banks  have, 
therefore,  a  title  which  they  can  convey  to  the  appellee,  and  which 
would,  in  his  hands,  be  indefeasible.  It  would  seem  extremely  incon- 
venient, if  every  contractor  with  one  of  these  banks  could,  for  the  pur- 
pose of  avoiding  his  contract,  institute  the  enquiry  whether  the  bank 
had  violated  its  charter." 

In  Silver  Lake  IJankv.  North,  4  Johnson's  Reports,  the  same  prin- 
ciple is  recognized. 

In  Sank  v.  Matthews,  98  U.  S.  621,  it  is  said :  "  Where  a  corpora- 
tion is  incompetent  by  its  charter  to  take  title  to  real  estate,  a  convey- 
ance to  it  is  not  void." 

In  Mallett  v.  Simpson,  94  N.  C.  37,  it  was  held  that  although  a  cor- 


462      FAYETTE   LAND   CO.   V.   LOUISVILLE   AND   NASHVILLE   R.   CO. 

poration  is  forbidden  by  its  charter  to  hold  real  estate,  yet  a  deed  of 
land  to  it  is  valid,  "  and  even  when  the  right  to  acquire  real  property 
is  limited  by  the  charter,  and  the  corporation  transcends  its  power  in 
that  respect,  a  conveyance  to  it  is  not  void,  but  only  the  sovereign  can 
object.  It  is  valid  until  assailed  in  a  direct^pj^cjeeding_instituted  by 
the  sovereign  jorJJoaJL4iurp_Q_se.'' 

In  ^NafTHarik  v.  Whitney,  103  U.  S.  99,  the  bank  had  taken  secur- 
ity upon  real  estate  for  a  loan  which  it  was  prohibited  to  do  by  the 
National  Banking  Law.  Mr.  Justice  Field,  delivering  the  opinion, 
said  that  "  the  statute  did  not  declare  such  security  void,  but  was  silent 
on  the  subject ;  that  had  Congress  so  intended  it  would  have  been  easy 
to  say  so,  and  it  can  hardly  be  presumed  that  this  would  not  have  been 
done  instead  of  leaving  the  question  to  be  settled  by  the  uncertain  re- 
sult of  litigation  and  judicial  decision."  And,  after  citing  numerous 
cases  where  a  disregard  of  statutory  prohibitions  has  not  been  held  to 
vitiate  the  contracts  of  parties,  but  only  to  authorize  actions  by  the 
Government  against  them,  the  court  held  that  the  prohibitory  clauses 
of  the  banking  law  did  not  vitiate  real  estate  securities  taken  for  loans, 
and  that  a  disregard  of  them  only  laid  the  association  open  to  proceed- 
ings by  the  Government.  .  .  .  **  That  has  always  been  the  punishment 
prescribed  for  the  wanton  violation  of  a  charter,  and  it  ma)1  be  made 
to  follow  whenever  the  proper  public  authority  shall  see  fit  to  enforce 
its  application." 

In  Fritts  et  als.  v.  Palmer,  132  U.  S.  282,  it  is  said  by  Mr.  Justice 
Harlan,  "  that  where  a  corporation  is  incompetent  by  its  charter  to  take 
a  title  to  real  estate,  a  conveyance  to  it  is  not  void,  but  only  voidable, 
and  the  sovereign  alone  can  object.  It  is  valid  until  assailed  in  a  direct 
proceeding  instituted  for  that  purpose." 

The  text  writers  are  to  the  same  effect.  In  1  Beach  on  Corp.,  Sec. 
378,  it  is  said  : 

"  No  party  except  the  State  can  object  that  a  corporation  is  holding 
real  estate  in  excess  of  its  rights.  Accordingly,  under  an  Act  which 
forbids  a  foreign  corporation  to  '  acquire  and  hold '  real  estate,  a  deed 
of  conveyance  of  land  to  such  corporation  is  not  void.  It  passes  the 
title,  and  the  corporation  may  hold  the  land  subject  to  the  Common- 
wealth's right  to  escheat.  The  Commonwealth  alone  can  object  to  the 
legal  capacity  of  a  corporation  to  hold  real  estate.  There  must  be  a 
direct  proceeding  by  the  State  for  the  purpose  of  vacating  the  deed." 

In  Thompson  on  Corporations,  Sec.  5795,  it  is  said  : 

"  Although  a  corporation  may  be  disabled  or  forbidden  from  holding 
land  at  all,  or  from  holding  land  for  particular  purposes,  or  from  hold- 
ing land  beyond  a  prescribed  limit,  yet  if  it  does  hold  land  in  the 
face  of  such  disabilities  or  prohibitions,  its  title  will  be  good  except 
as  against  the  State  alone,  and  that  it  will  be  deemed  to  have  a  good 
title  until  its  title  is  invalidated  in  a  direct  proceeding  instituted  by  the 
State  for  that  purpose." 

And  in  Sec.  5797,  it  is  said : 


FAYETTE   LAND   CO.   V.    LOUISVILLE  AND   NASHVILLE   R.   CO.      463 

"  Although  the  State  might,  in  a  direct  proceeding  for  that  purpose, 
have  overthrown  the  title  of  the  corporation  and  escheated  the.  prop- 
erty to  its  own  use,  yet,  not  having  done  so,  the  corporation  may  in 
the  meantime  convey  an  indefeasible^  title  to  another,  of  whatever  estate 
in  the  lands  had  been  conveyed  to  or  acquired  by  it." 

The  doctrine  that  the  State  alone  can  interfere  seems  to  rest  upon  the 
principle  suggested  in  The  Banks  v.  Poitiaux,  supra,  that  it  would  be 
extremely  inconvenient  if  every  contractor  with  corporations  might,  for 
the  purpose  of  avoiding  their  contracts,  be  permitted  to  institute  en- 
quiry as  to  violations  of  the  charter.  It  is  a  question  which  concerns 
public  interests,  and  the  State  alone  is  competent  to  protect  and  defend 
them.  Runyan  v.  The  Lessee  of  Coster,  14  Peters,  122  ;  Wroten's 
Assignee  v.  Armat  &  als.,  31  Gratt.  251. 

Enough  has  been  said  to  show  that  the  conveyance  to  the  Louisville 
&_NashvilIe  Railroad  Company  was  not  void,  but  that  it  served  to  vest 
the  title  in  the  appellant^ 

Is^the  deed  voidable?  As  we  have  seen  in  discussing  this  first 
branch  of  this  assignment  of  error,  no  one  can  be  heard  to  question 
the  right  of  a  corporation  to  acquire  and  hold  real  estate,  except  the 
State  by  which  the  corporation  was  created,  or  that  State  within  whose 
limits  and  by  whose  permission  or  authority,  express  or  implied,  it  does 
business,  and  it  must  do  so  by  a  direct  proceeding  instituted  for  that 
purpose. 

There  is  much  plausibility  in  the  suggestion  of  the  appellee  that  Sec. 
1073  was  designed  to  prohibit  the  acquisition  of  real  estate  by  means 
of  the  exercise  of  the  right  of  eminent  domain,  or  by  condemnation, 
as  it  is  called,  except  to  the  extent  and  within  the  limits  and  in  the 
mode  appointed  by  that  section. 

By  Sec.  1068  corporations  are  authorized  to  purchase  and  hold  real 
estate  without  any  limitation  whatsoever  ;  by  Sec.  1070  they  are  pro- 
hibited to  hold  more  real  estate  than  is  proper  for  the  purposes  for 
which  they  are  incorporated.  In  order  to  give  full  effect  to  these  sec- 
tions as  well  as  to  Sec.  1070,  there  is  much  room  to  contend  that  the 
first  regulates  the  acquisition  of  real  estate  by  contract,  and  that  the 
last  applies  to  proceedings  by  corporations  for  the  condemnation  of 
real  estate. 

But,  granting  that  Sec.  1073  applies  to  the  acquisition  by  corpora- 
tions of  real  estate  without  respect  to  the  mode  of  acquisition,  none  of  ( 
the  sections  referred  to  declare  that  the  title  shall  be  void.  As  was 
said  in  The  Banks  v.  Poitiaux,  the  statute  law  is  only  directory  in  this 
respect.  It  imposes  no  penalty  in  terms.  It  does  not  declare  the  pur- 
chase by  or  the  conveyance  to  the  banks  to  be  void,  nor  vest  the  title 
in  the  Commonwealth  in  consequence  of  such  purchase  and  convey- 
ance. The  onLv  penalty  incurred 


^ 

lation  of  its  charter  by  an  incorporated  institution.  The  impending 
ttengeFof  a~judgmenfTof  duster  and  dissolution  is,  we  think,  the  only 
check  contemplated  by  the  law.  That  has  always  been  the  punishment 


464      FAYETTE  LAND   CO.   V.    LOUISVILLE   AND   NASHVILLE   R.   CO. 

prescribed  for  the  wanton  violation  of  a  charter,  and  it  may  be  made 
to  follow  whenever  the  proper  public  authority  may  see  fit  to  enforce 
its  application.  See  National  Bank  v.  Whitney,  supra. 

The  statute  of  mortmain  has  never  been  adopted  into  the  jurispru- 
dence of  this  State.  Lomax's  Dig.,  2  ed.,  p.  815;  Rivanna  Navi- 
gation Co.  v.  Dawson,  3  Gratt.  21  ;  Conrad  v.  Marshall,  5  Call,  364. 
It  is  safe  to  sayT  therefore,  that  there  is  no  proceeding  authorized 
by  the  common  law  of  Virginia  under  which  lands  acquired  by  a  cor- 
poration Ifl  VlolutTDTrof^its  charter  can  beJorgifeTrto'We'Ktate. 

Ts  there  any  statutory  authority  by  which  it"can~rJe~"ddiie  ?  Chapter 
105  of  the  Code  is  upon  the  subject  of  "  Escheats  and  Property  Dere- 
lict." It  provides  for  the  appointment  of  an  escheator  in  every  county ; 
and  Sec.  2374  directs  each  commissioner  of  the  revenue  annually  to 
furnish  the  escheator  of  his  county  or  corporation  with  "a  list  of  all 
lands  within  his  district  of  which  an}*  person  shall  have  died  seized  of 
an  estate  of  inheritance  intestate,  and  without  any  known  heir,  or  to 
which  no  person  is  known  by  him  to  be  entitled." 

We  have  seen  that  by  the  deed  from  Flanary  and  wife  the  title  passed 
to  and  vested  in  Smith  as  the  agent  of  the  Louisville  &  Nashville  R.  R. 
Co.,  and  b}^  a  subsequent  deed  it  was  conve}'ed  to  the  Louisville  & 
Nashville  R.  R.  Co.  directlj*.  The  land  in  controvers}*,  therefore,  does 
not  come  within  the  terras  of  the  section  just  quoted,  for  the  commis- 
sioner of  the  revenue  could  not  in  the  face  of  the  conveyances  of  record 
rightfully  say  that  there  is  no  person  known  by  him  to  be  entitled  to  it. 

It  appears  further  that  this  property  has  been  convej-ed  by  deed  from 
the  appellee  to  the  appellant,  and  that  no  proceedings  have  been  taken 
by  the  State  to  revoke  the  privileges  given  the  appellee  by  the  Act  of 
Assembly  before  referred  to.  Acts  of  Special  Session  1887,  p.  19. 
The  deed  of  the  Louisville  &  Nashville  R.  R.  Co.  was,  therefore, 
effectual  to  pass  its  title  to  the  land  in  controversy  and  vest  it  in 
the  Fayette  Land  Company.  See  The  Banks  v.  Poitiaux,  3  Rand,  at 
page  142  ;  and  5  Thomp.  Com.  on  the  Law  of  Corp.,  Sec.  5797,  and 
cases  there  cited. 

We  are  of  opinion,  therefore,  that  the  seventh  assignment  of  error  is 
not  well  taken,  and,  upon  the  whole  case,  the  decree  complained  of  must 
be  affirmed  Affirmed. 


THOMAS   V.   WEST   JERSEY   R.    CO.  465 


SECTION   III. 

Ultra  Vires  Lease.     Remedies  in  Case  of  Repudiation  by  either 
Party  before  the  Expiration  of  the  Term. 

THOMAS  t>.   WEST  JERSEY  R.   CO. 

1879.     101  U.  S.  71.1 

ERROR  to  the  Circuit  Court  of  the  United  States  for  the  Eastern  Dis- 
trict of  Pennsylvania. 

This  was  an  action  of  covenant,  by  George  W.  Thomas,  Alfred  S. 
Porter,  and  Nathaniel  F.  Chew,  against  the  West  Jersey  Railroad 
Company,  and  they,  to  maintain  the  issue  on  their  part,  offered  to 
prove  the  following  facts :  — 

On  the  eighth  day  of  October,  1863,  the  Millville  and  Glassboro 
Railroad  Compan}*,  a  corporation  incorporated  by  the  legislature  of 
New  Jersey,  March  9,  1859,  entered  into  an  agreement  with  them, 
whereby  it  was  stipulated  that  the  company  should,  and  did  thereby, 
lease  its  road,  buildings,  and  rolling-stock  to  them  for  twenty  years 
from  the  1st  of  August,  1863,  for  the  consideration  of  one-half  of  the 
gross  sum  collected  from  the  operation  of  the  road  by  the  plaintiffs  dur- 
ing that  period  ;  that  the  company  might  at  any  time  terminate  the 
contract  and  retake  possession  of  the  railroad,  and  that  in  such  case,  if 
the  plaintiffs  so  desired,  the  company  would  appoint  an  arbitrator*, 
who,  with  one  appointed  by  them,  should  decide  upon  the  value  of  the 
contract  to  them,  and  the  loss  and  damage  incurred  by,  and  justly  and 
equitably  due  to  them,  by  reason  of  such  termination  thereof;  that  in 
the  event  of  a  difference  of  opinion  between  the  arbitrators,  they  were 
to  choose  a  third,  and  the  decision  of  a  majority  was  to  be  final,  con- 
clusive, and  binding  upon  the  parties. 

On  the  12th  of  October,  1867,  articles  of  agreement  were  entered 
into  between  the  Millville  and  Glassboro  Railroad  Compan}-  and  the 
West  Jersey  Railroad  Compan}*,  the  defendant,  whereby  it  was  agreed 
that  the  former  should  be  merged  into  and  consolidated  with  the  latter. 

In  November,  1867,  a  written  notice  was  served  by  the  Millville  and 
Glassboro  Railroad  Company  upon  the  plaintiffs,  putting  an  end  to  the 
contract  and  to  all  the  rights  thereby  granted,  and  notifying  them  that 
the  company  would  retake  possession  of  the  railroad  on  the  first  day  of 
April,  1868. 

On  the  18th  of  March,  1868,  the  legislature  of  New  Jerse}'  passed 
an  act  whereby  it  was  enacted  that,  upon  the  fulfilment  of  certain  pre- 

1  Statement  abridged.    Argument  and  part  of  opinion  omitted.  —  ED. 

30 


466  THOMAS   V.   WEST   JEKSEY  E.   CO. 

liminaries,  the  Millville  and  Glassboro  Railroad  Company  should  be 
consolidated  with  the  West  Jersey  Railroad  Company,  "  subject  to  all 
the  debts,  liabilities,  and  obligations  of  both  of  said  companies."  The 
conditions  required  by  that  act  were  fulfilled,  and  the  railroad  was  duly 
delivered  by  the  plaintiffs  to  the  West  Jersey  Railroad  Company  on  the 
1st  of  April,  1868. 

On  April  13,  1868,  and  again  on  May  22  of  the  same  year,  notices 
to  arbitrate  according  to  the  terms  of  the  agreement  were  served  by 
the  plaintiffs  upon  the  Millville  and  Glassboro  Railroad  Company,  and 
immediately  thereafter  upon  the  West  Jersey  Railroad  Company.  The 
latter  company  refused  to  comply  with  the  terms  of  either  notice  ;  but 
subsequently,  on  the  21st  of  December,  1868,  an  agreement  of  submis- 
sion was  entered  into  between  the  plaintiffs  and  the  latter  company, 
whereby  H.  F.  Kenney  and  Matthew  Baird  were  appointed  arbitrators, 
with  power  to  choose  a  third,  to  settle  the  controvers}7  between  the 
parties.  These  arbitrators  disagreeing,  called  in  a  third,  who  joined 
with  said  Baird  in  an  award,  by  which  the  value  of  the  unexpired  term 
of  the  lease,  and  the  loss  sustained  by  reason  of  the  termination  thereof 
to  and  by  the  plaintiffs,  was  adjudged  to  be  the  sum  of  $159,437.07 ; 
and  the  West  Jersey  Railroad  Company  was  ordered  to  pay  that  sum 
to  the  plaintiffs.  This  award  was  subsequently  set  aside  in  a  suit  in 
equity  brought  in  New  Jersey. 

The  plaintiffs  further  offered  to  prove  their  compliance  in  all  respects 
with  the  terms  of  the  lease,  its  value,  and  the  loss  and  damage  they 
had  sustained  by  reason  of  its  termination  as  aforesaid.  The  court 
excluded  the  offered  testimony  on  the  ground  that  the  lease  by  the 
Millville  and  Glassboro  Railroad  Company  to  the  plaintiffs  was  ultra 
vires,  and  directed  the  jury  to  return  a  verdict  for  the  defendant.  The 
plaintiffs  duly  excepted  and  sued  out  this  writ. 

George  ~W.  Riddle,  and  A.  Sydney  Biddle,  for  plaintiffs  in  error. 

Samuel  Dickson,  contra. 

MILLER,  J.  The  ground  on  which  the  court  held  the  contract  to  be 
void  and  on  which  the  ruling  is  supported  in  argument  here,  is,  that 
the  contract  amounted  to  a  lease,  by  which  the  railroad,  rolling-stock, 
and  franchises  of  the  corporation  were  transferred  to  plaintiffs,  and 
that  such  a  contract  was  ultra  vires  of  the  company. 

The  authority  to  make  this  lease  is  placed  by  counsel  primarily  in 
the  following  language  of  the  thirteenth  section  of  the  company's 
charter :  — 

"That  it  shall  be  lawful  for  the  said  compan}*,  at  any  time  during 
the  continuance  of  its  charter,  to  make  contracts  and  engagements  with 
any  other  corporation,  or  with  individuals,  for  the  transporting  or  con- 
veying any  kinds  of  goods,  produce,  merchandise,  freight,  or  passen- 
gers, and  to  enforce  the  fulfilment  of  such  contracts." 

This  is  no  more  than  saying,  "you  may  do  the  business  of  carrying 
goods  and  passengers,  and  may  make  contracts  for  doing  that  business. 


THOMAS   V.   WEST  JERSEY   R.   CO.  467 

Such  contracts  you  may  make  with  any  other  corporation  or  with  indi- 
viduals." No  doubt  a  contract  by  which  the  goods  received  from  rail- 
road or  other  carrying  companies  should  be  carried  over  the  road  of 
this  company,  or  by  which  goods  or  passengers  from  this  road  should 
be  carried  by  other  railroads,  whether  connecting  immediately  with 
them  or  not,  are  within  this  power,  and  are  probably  the  main  object 
of  the  clause.  But  it  is  impossible,  under  any  sound  rule  of  construc- 
tion,  to  find  in  the  language  used  a  permission  to  sell,  lease,  or  transfer 
to  others  the  entire  road  ancT  the  rights  and  franchises  of_the  corpora- 
tion- To  do  so  is  to  deprive  the  company  of  the  power  of  making 
those  contracts  which,  this  clause  confers  and  of  performing  the  duties 
which  it  implies. 

It  is  next  insisted,  in  the  language  of  counsel,  that  though  this  may 
be  so,  "a  corporate  body  ma}'  (as  at  common  law)  do  am'  act  which 
is  not  either  expressly  or  impliedly  prohibited  by  its  charter ;  although 
where  the  act  is  unauthorized  by  the  charter  a  shareholder  ma}'  en- 
join its  execution  ;  and  the  State  may,  by  proper  process,  forfeit  the 
charter." 

We  do  not  concur  in  this  proposition.  "We  take  the  general  doctrine 
to  be  in  this  country,  though  there  ma}7  be  exceptional  cases  and  some 
authorities  to  the  contrary,  that  the  powers  of  corporations  organized 
under  legislative  statutes  arc  such  and  sucu  only  as  tnose  statutes  coi> 
Tcr!  Conceding  the  rule  applicable  to  all  statutes,  that  what  is  fairly 
implied  is  as  much  granted  as  what  is  expressed,  it  remains  that  the 
charter  of  a  corporation  is  the  measure  of  its  powers,  and  that  the  enu- 
meration of  these  powers  implies  the  exclusion  of  all  others. 

There  is  another  principle  of  equal  importance  and  equally  conclusive 
against  the  validity  of  this  contract,  which,  if  not  coming  exactly  within 
the  doctrine  of  ultra  vires  as  we  have  just  discussed  it,  shows  very 
clearly  that  the  railroad  company  was  without  the  power  to  make  such 
a  contract. 

That  principle  is  that  where  a  corporation,  like  a  railroad  company, 
has  granted  to  it  by  charter  a  franchise  intended  in  large  measure  to 
be  exercised  for  the  public  good,  the  due  performance  of  those  functions 
being  the  consideration  of  the  public  grant,  any  contract  which  disables 
the  corporation  from  performing  those  functions  which  undertakes, 
•without  the  consent  of  the  State,  to  transfer  to  others  the  rights  and 
powers  conferred  by  the  charter,  and  to  relieve  the  grantees  of  the  bur- 
den which  it  imposes,  is  a  violation  of  the  contract  with  the  State,  and 
is  void  as  against  public  policy. 

It  remains  to  consider  the  suggestion  that  the  contract,  having  been 
executed,  the  doctrine  of  ultra  vires  is  inapplicable  to  the  case.  There 
can  be  no  question  that,  in  many  instances,  where  an  invalid  contract, 
which  the  party  to  it  might  have  avoided  or  refused  to  perform,  has  been 


468  THOMAS   V.   WEST   JERSEY  R.   CO. 

fully  performed  on  both  sides,  whereby  money  has  been  paid  or  prop- 
erty changed  hands,  the  courts  have  refused  to  sustain  an  action  for 
the  recovery  of  the  property  or  the  money  so  transferred. 

In  regard  to  corporations,  the  rule  has  been  well  laid  down  by  Corn- 
stock,  C.  J.,  in  Parish  v.  Wheeler  (22  N.  Y.  494),  that  the  executed 
dealings  of  corporations  must  be  allowed  to  stand  for  and  against  both 
parties  when  the  plainest  rules  of  good  faith  require  it. 

But  what  is  sought  in  the  case  before  us  is_the^nforcement  of  the 
unexecuted  part  of  this  agreement.  So  far  as  it  has  been  executed, 
namely,  the  four  or  five  years  of  action  under  it,  the  accounts  have 
been  adjusted,  and  each  part}*  has  received  what,  he  was  entitled  to  by 
its  terms.  There  remains  unperformed  the  covenant  to  arbitrate  with 
regard  to  the  value  of  the  contract.  It  is  the  damages  provided  for  in 
that  clause  of  the  contract  that  are  sued  for  in  this  action.  Damages 
for  a  material  part  of  the  contract  never  performedj_damages  jfor  the 
vilue  of  a  contract  which  was  void.  It  is  not  a  case  of  a  contract  fully 
executed.  The  very  nature  of  the_suit_is_j;o_rfi£over  damages  for  its 
non-performajjce^ As  to  this  It  TiTnot  an  executed  contract. 

Not  only  so,  but  it  is  a  contract  forbidden  by  public  polic}*  and  be- 
yond the  power  of  the  defendants  to  make.  Having  entered  into  the 
agreement,  it  was  the  dut}r  of  the  company  to  rescind  or  abandon  it  at 
the  earliest  moment.  This  dutjr  was  independent  of  the  clause  in  the 
contract  which  gave  them  the  right  to  do  it.  Though  they  delayed  its 
performance  for  several  years,  it  was  nevertheless  a  rightful  act  when 
it  was  done.  Can  this  performance  of  a  legal  duty,  a  duty  both  to 
stockholders  of  the  company  and  to  the  public,  give  to  plaintiffs  a  right 
of  action  ?  Can  they  found  such  a  right  on  an  agreement  void  for  want 
of  corporate  authority  and  forbidden  by  the  policy  of  the  law  ?  To  hold 
that  they  can,  is,  in  our  opinion,  to  hold  that  any  act  performed  in  exe- 
cuting a  void  contract  makes  all  its  parts  valid,  and  that  the  more  that 
is^done  under  a  contract  forbidden  by  law,  the  stronger  is  the  claim  to 
its  enforcement  by  tnecourts. 

We  cannot  see  that  the  present  case  comes  within  the  principle  that 
requires  that  contracts  which,  though  invalid  for  want  of  corporate 
power,  have  been  fully  executed  shall  remain  as  the  foundation  of  rights 
acquired  by  the  transaction. 

We  have  given  this  case  our  best  consideration  on  account  of  the 
importance  of  the  principles  involved  in  its  decision,  and  after  a  full 
examination  of  the  authorities  we  can  see  no  error  in  the  action  of  the 
Circuit  Court.  Judgment  Affirmed. 

MR.  JUSTICE  BRADLEY  did  not  sit  in  this  case. 


AMERICAN  UNION   TELEGRAPH   CO.   V.   UNION   PACIFIC   R.   CO.      469 


AMERICAN  UNION  TELEGRAPH   CO.   v.   UNION 
PACIFIC   R.    CO. 

1880.     1  McCrary's  U.  S.  Circuit  Court  Reports,  188.1 

MOTION  for  injunction. 

The  Union  Pacific  Railroad  Co.  was  chartered  by  Congress,  with 
power  to  "  lay  out,  locate,  construct,  furnish,  maintain  and  enjoy  a  con- 
tinuous railroad  and  telegraph,  with  appurtenances."  The  U.  S.  en- 
dowed the  corporation  with  large  grants  of  lands  and  bonds  to  aid  in 
the  construction,  and  imposed  upon  the  corporation  the  duty  of  reim- 
bursing the  government  from  the  earnings  of  the  road  and  telegraph 
line.  In  1866  the  U.  P.  R.  Co.  leased  to  the  Am.  Union  Tel.  Co.  all 
its  telegraph  lines,  wires,  poles,  &c.  for  the  whole  term  of  the  R.  R. 
Co.'s  charter  and  any  renewals  thereof;  subject  to  the  rights  of  the 
United  States  as  set  forth  in  the  charter  of  the  railroad  company,  and 
on  the  condition  that  plaintiff  would  fully  perform  all  the  duties  imposed 
or  to  be  imposed  upon  the  railroad  company  by  its  charter  or  by  the 
laws  of  the  United  States.  The  R.  R.  Co.  received  a  valuable  consid- 
eration in  stock  of  the  Telegraph  Co.,  which  stock  the  R.  R.  Co.  applied 
to  its  own  use.  In  Feb.  1880,  the  R.  R.  Co.  assumed,  of  its  own  motion, 
to  rescind  the  lease,  and  to  resume  possession  and  control  of  the  prop- 
erty ;  for  which  purpose  its  agents  cut  certain  wires  running  from  plain- 
tiffs offices  to  the  main  line.  The  Telegraph  Co.  filed  a  bill ;  praying, 
inter  alia,  for  an  injunction  to  restrain  the  defendants  from  disregard- 
ing the  above  contract,  and  from  interfering  with  the  property  covered 
thereby,  and  from  preventing  plaintiff  from  reconnecting  the  wires,  so 
as  to  restore  them  to  their  original  condition  before  the  same  were  cut. 
The  defendants  answered,  affidavits  were  filed,  and  a  full  hearing  was 
had  upon  the  application  for  injunction  (a  temporary  injunction  having 
been  allowed). 

Williams  &  Thompson,  and  C.  Beckwith,  for  plaintiffs. 

John  F.  Dillon,  Sidney  Bartlett,  J.  P.  Usher,  and  A.  J.  Popple- 
ton,  for  defendants. 

MCCRARY,  CIRCUIT  JUDGE. 

[The  learned  Judge  held,  that  the  power  which  the  charter  confers, 
to  "construct,  furnish,  maintain,  and  enjoy  a  continuous  railroad  and 
telegraph,"  was  personal,  and  carried  with  it  a  duty  and  obligation 
which  could  not  be  transferred  ;  that  the  contract  of  lease  was  ultra 
vires,  because  it  transferred  from  the  company  property  which  was 
necessary  to  the  performance  by  the  company  of  its  public  duties ;  and 
also  because  it  attempted  to  transfer  certain  franchises  of  the  company, 

1  Statement  abridged  from  opinion.  Arguments  and  part  of  opinion  omitted. 
—  ED. 


H 


470      AMERICAN   UNION   TELEGRA.PH   CO.   V.   UNION   PACIFIC   K.   CO. 

viz.  the  right  to  operate  a  telegraph  line  and  to  fix  and  collect  tolls  for 
the  use  of  the  same.  The  remainder  of  the  opinion  is  as  follows  :] 

This  brings  me  to  the  question  whether  the  railroad  company  can  be 
permitted  to  rescind  the  contract,  and  on  its  own  motion  to  take  pos- 
session of  the  lines,  offices,  and  property,  without  first  returning^the 
consideration  received  therefor  from  the  plaintiff^  As  already  stated, 
the  railroad  company  received  from  the  plaintiff,  in  payment  for  the 
property  and  rights  agreed  to  be  transferred  by  said  contracts,  17,800 
shares  of  the  capital  stock  of  the  corporation  plaintiff.  There  is  a  dis- 
pute as  to  the  value  of  the  stock,  but  I  believe  it  is  not  placed  by  any 
one  of  the  deponents  at  less  than  $150,000,  while  some  of  them  place  it 
at  a  much  higher  sum. 

No  case  has  been  cited  in  argument,  nor  have  I  been  able  to  find  one, 
which  holds  that  a  court  of  equity,  having  jurisdiction  of  the  parties  to 
"  and  the  subject-matter  of"  an  illegal  contract,  should  require  one  of 
such  parties  to  give  up  what  he  has  received  under  it,  without  requiring 
the  other  to  do  the  same.  Many  cases  hold  that  a  corporation  which 
has  made  a  contract  ultra  vires,  which  has  not  been  fully  performed,  is 
not  estopped  from  pleading  its  own  want  of  power  when  sued  upon  such 
contract;  but  that  doctrine  does  not  apply  to  a  case  where  a  party 
comes  into  a  court  of  equit}',  and,  while  retaining  all  that  he  has  re- 
ceived upon  such  a  contract,  asks  to  be  permitted  to  retake  what  he  has 
parted  with  under  it.  I  take  it  there  is  nothing  in  the  law,  as  there  is 
certainly  nothing  in  the  principles  of  equity_1Jx)_es_top  the  court  from 
sayingjbhat_the  obligation  to  return  the  propert}'  transferred  under  these 
contracts  is  mutual,  and  shall  not  be  enforced  against  one  of  the  parties 
without  being  at  the  same  time  enforced  against  the  othcrT~^As  the 
parties  and  the  subject-matter  are  now  before  the  court,  it  is  the  duty 
of  the  court,  as  far  as  possible,  to  place  them  in  statu  quo.  It  has  been 
held  that  even  in  cases  at  common  law,  a  contract,  ultra  vires,  made 
between  a  corporation  and  another  person,  and  under  which  the  corpo- 
ration has  received  value,  which  it  retains,  will  be  so  far  enforced  as  to 
estop  the  corporation  from  refusing  payment  on  the  ground  of  its  own 
want  of  power.  Bradley  v.  Buttard,  55  111.  417. 

And  in  the  case  of  Thomas  v.  R.  Co.  (Supreme  Court  U.  S.),  alread}' 
quoted  from  at  length,  Mr.  Justice  Miller,  upon  this  point,  says: 
"There  can  be  no  question  that,  in  manj-  instances,  where  an  invalid 
contract,  which  the  party  to  it  might  have  avoided  or  refused  to  per- 
form, has  been  fully  performed  on  both  sides,  whereby  rnone}'  has  been 
paid  or  property  changed  hands,  the  courts  have  refused  to  sustain  an 
action  for  the  recovery  of  the  property  or  the  money  so  transferred. 
And  in  regard  to  corporations,  the  rule  has  been  well  laid  down  by 
Chief  Justice  Comstock,  in  Parish  v.  Wheeler,  22  N.  Y.  404,  that  the 
executed  dealings  of  corporations  must  be  allowed  to  stand  for  and 
against  both  parties  when  the  plainest  rules  of  good  faith  require  it. 
ByjLjykttl  Is  bOUghl^<uth^^aje_before  iisjsjbhe  enforcement  of  the  unex- 
ecuted part  of  this  agreement.  So  far  as  it  has  been  executed,  namely, 


AMERICAN   UNION   TELEGRAPH   CO.   V.   UNION   PACIFIC   R.   CO.      471 

the  four  or  five  years  of  action  under  it,  the  accounts  have  been 
adjusted,  and  each  party  has  received  what  he  was  entitled  to  by  its 
terms." 

The  present  case,  like  the  New  Jersey  case  in  which  these  remarks 
were  made,  is  one  on  which  the  contract  has  been  executed  in  part,  but 
it  differs  from  that  case  in  one  important  particular.  In  the  New  Jersey 
case  the  court  sajr  that,  "so  far  as  it  [the  contract  in  question]  has 
been  executed,  naniel}*,  the  four  or  five  years  of  action  under  it,  the 
accounts  have  been  adjusted,  and  each  party  has  received  what  he  was 
entitled  to  by  its  terms." 

If  that  case  had  been  in  equity,  and  it  had  appeared  that  the  railroad 
company  had  received  in  advance  the  full  consideration  for  the  whole 
term  of  the  lease,  which  it  retained,  while  asking  to  be  relieved  from 
the  contract,  I  have  no  doubt  the  court  would  have  said  :  "  You  must 
come  into  this  tribunal  with  clean  hands  ;  you  must  do  equit}-  before  }-ou 
can  seek  the  aid  of  a  court  of  conscience." 

The  contention  of  the  railroad  company  is  that  it  should  be  permitted 
to  take  possession  of  the  property  in  controvers}-  without  process  or 
legal  proceedings.  While  I  am  clear  that  the  contracts  under  which 
the  property  is  held  by  plaintiff  are  ultra  vires,  there  is  a  dispute  upon 
that  subject,  and  such  a  dispute  as  in  my  judgment  cannot  be  deter- 
mined by  the  railroad  company  of  its  own  motion. 

The  right  of  rescission  does  not  justify  the  railroad  company  in  taking 
possession  except  by  lawful  means.  The  plaintiff  has  a  right  to  be 
heard  upon  issue  joined  in  a  proper  proceeding  before  being  ejected. 
The  present  question  is  not  whether  the  contracts  should  be  rescinded 
and  the  property  restored  to  the  railroad  company,  but  whether  this 
should  be  done  by  the  railroad  company  upon  its  own  motion,  and  in  a 
way  to  deprive  the  plaintiff  not  only  of  a  hearing  in  the  regular  course 
of  this  court,  but  also  deprive  it  of  the  right  of  appeal. 

It  is  one  thing  for  me  to  hold  that  the  contracts  are  in  my  judgment 
ultra  vires,  and  quite  another  to  say  to  the  railroad  compan}-,  "  You 
may  turn  the  plaintiff  out  and  take  possession  without  giving  it  a  day 
in  court." 

An  injunction  will  often  be  granted  to  restrain  a  part}-  from  deciding 
for  himself  a  question  involving  controverted  rights,  and  to  compel  him 
to  resort  to  the  courts,  and  this  without  regard  to  the  absolute  merits 
of  the  controversy.  It  is  enough  that  there  is  a  controversy  to  justify 
a_court  of  equity  in  directing  that  it  be^seUjed  by  legal_pjr>ceedings. 
Eckelkamp  v.  Schroeder,  45  Mo.  505  ;  Varick  v.  New  Yor&TT~J6hns. 
Ch.  53;  Dudley  v.  Trustees,  12  B.  Mon.  610;  Farmers  v.  Reno,  53 
Pa.  St.  224  ;  Sunsing  v.  Steamboat  Co.,  7  Johns.  Ch.  162. 

The  principle  settled  by  these  and  many  other  cases  is  that  a  party 
who  is  in  actual  possession  of  property,  claiming  under  color  of  title,  is 
not  to  be  ousted,  except  by  the  means  provided  by  law,  and  such  a  pos- 
session the  court  will  protect  by  injunction  from  disturbance  by  any 
other  means.  For  this  reason,  therefore,  as  well  as  upon  the  grounds 


472          ST.   LOUIS,   ETC.   R.   CO.   V.   TERRE   HAUTE,   ETC.   R.   CO. 

above  stated,  I  am  clearly  of  the  opinion  that  the  railway  company  can- 
not be  permitted  to  oust  the  plaintiff  from  possession  without  process. 

The  injunction,  heretofore  granted,  will  be  so  far  modified  as  to  make 
it  clear  that  the  railroad  company  is  at  liberty  to  institute  legal  proceed- 
ings, either  by  cross-bill  in  this  case  or  otherwise,  tocancel  and  set  aside 
the  said  contracts  upon  a  return  of  the  consideration,  and  to  settle  and 
adjust,  upon  principles  of  equity,  the  accounts  between  the  parties. 


ST.  LOUIS,  VANDALIA,  &  TERRE  HAUTE  R.  CO.  v.  TERRE 
HAUTE   &   INDIANAPOLIS   R.   CO. 

1892.     145  U.  S.  393.1 

APPEAL  from  U.  S.  Circuit  Court  for  the  Southern  District  of  Illinois. 

Bill  in  equity,  filed  in  1887,  by  an  Illinois  corporation  against  an 
Indiana  corporation,  to  set  aside  and  cancel  a  conveyance,  or  lease,  of_ 
the  plaintjg!a-Jailroad  and  franchisesto  the  defendant  for  a  term  of  999 
years.  The  lease  was  made  in  1868"!  The  defendants  took  possession 
of  the  road  shortly  after  the  execution  of  the  lease,  and  have  ever 
since  operated  it.  The  bill,  as  amended,  pra3red  for  a  cancellation 
and  surrender  of  the  lease,  for  a  return  of  the  railroad  and  other 
property  held  under  it,  for  an  injunction  against  disturbing  the  plaintiff 
in  the  possession  and  control  thereof,  and  for  an  account  of  the  sums 
which  the  defendant  had  received,  or  with  due  diligence  might  have 
received,  from  the  use  and  operation  of  the  railroad  and  propertj".  A 
demurrer  to  the  bill  was  sustained  by  the  Circuit  Court  (33  Federal 
Reporter,  440). 

Lyman  Trumbutt,  John  M,  Jlutler,  Henry  S.  Bobbins,  and  ferry 
Trumbull,  for  appellant. 

George  Hoadly,  for  appellee. 

GKAY,  J.  The  object  of  this  suit  between  two  railroad  corporations, 
as  stated  in  the  amended  bill,  is  to  have  a  contract,  by  which  the  plain- 
tiff transferred  its  railroad  and  equipment,  as  well  as  its  franchise  to 
maintain  and  operate  the  road,  to  the  defendant  for  a  term  of  nine 
hundred  and  ninety-nine  ^years,  set  aside  and  cancelled,  as  beyond  the 
corporate  powers  of  one  or  both  of  the  parties. 

In  short,  by  this  contract  one  railroad  corporation  undertook  to 
transfer  its  whole  railroad  and  equipment,  and  its  privilege  and  fran- 
chise to  maintain  and  operate  the  road,  to  another  railroad  corporation 
for  a  term  of  nine  hundred  and  ninety-nine  years,  in  consideration  of 
the  payment  from  time  to  time  by  the  latter  to  the  former  of  a  certain 

1  Statement  abridged.    Arguments  and  part  of  opinion  omitted.  — ED. 


ST.   LOUIS,   ETC.   R.   CO.   V.   TERRE   HAUTE,   ETC.   R.   CO.          473 

portion  of  the  gross  receipts.  This  was,  in  substance  and  effect,  a 
lease  of  the  railroad  and  franchise  for  a  term  of  almost  a  thousand 
years,  and  was  a  contract  which  neither  corporation  had  the  lawful 
power  to  enter  into,  unless  expressly  authorised  by  the  State  which 
created  it,  and  which,  if  beyond  the  scope  of  the  lawful  powers  of 
either  corporation,  was  unlawful  and  wholly  void,  could  not  be  ratified 
or  validated  by  either  or  both,  and  would  support  no  action  or  suit  by 
either  against  the  other.  Thomas  v.  Railroad  Co.,  101  U.  S.  71 ; 
Pennsylvania  Railroad  v.  St.  Louis,  Alton  &  Terre  Haute  Railroad, 
118  U.  S.  290,  630;  Oregon  Railway  v.  Oregonian  Railway,  130 
U.  S.  1 ;  Central  Transportation  Co.  v.  Pullman's  Car  Co.,  139 
U.  S.  24. 

Upon  the  question  whether  this  contract  was  ultra  vires  of  either 
corporation,  this  case  cannot  be  distinguished  in  principle  from  Penn- 
sylvania Railroad  v.  /St.  Louis,  Alton  &  Terre  Haute  Railroad, 
above  cited. 

[After  discussing  the  question  whether  the  contract  was  bej'ond  the 
corporate  powers  of  either  party,  the  opinion  continues  as  follows  :] 

It  may  therefore  be  assumed,  as  contended  by  the  plaintiff,  that  the 
contract  in  question  was  ultra  vires  of  the  defendant,  and  therefore  did 
not  bind  either  part}',  and  neither  party  could  have  maintained  a  suit 
upon  it,  at  law  or  in  equity,  against  the  other. 

It  does  not,  however,  follow  that  this  suit  to  set  aside  and  cancel  the 
contract  can  be  maintained.  If  it  can,  it  is  somewhat  remarkable  that, 
in  the  repeated  and  full  discussions  which  the  doctrine  of  ultra  vires 
has  undergone  in  the  English  courts  within  the  last  fifty  years,  no 
attempt  has  been  made  to  bring  a  suit  like  this.  The  only  cases  cited 
in  the  elaborate  briefs  for  the  plaintiff,  or  which  have  come  to  our 
notice,  approaching  this  in  their  circumstances,  are  in  American  courts, 
not  of  last  resort,  and  present  no  sufficient  reasons  for  maintaining  this 
suit.  Auburn  Academy  v.  Strong,  Hopkins  Ch.  278  ;  Atlantic  & 
Pacific  Telegraph  Co.  v.  Union  Pacific  Railway,  1  McCrary,  541 ; 
Western  Union  Telegraph  Co.  v.  St.  Joseph  &  Western  Railway,  1 
McCrary,  565  ;  Union  Bridge  Co.  v.  Troy  &  Lansingburgh  Railroad, 
1  Lansing,  240 ;  New  Castle  Railway  v.  Simpson,  21  Fed.  Rep.  533. 

The  English  cases  relied  on  by  the  plaintiff  were  either  suits  to  set 
aside  marriage  brokage  bonds,  as  in  Drury  v.  Hooke,  1  Vernon,  412, 
and  Smith  v.  Bruning,  2  Vernon,  392 ;  S.  C.  nom.  Goldsmith  v. 
JBruning,  1  Eq.  Cas.  Ab.  89  ;  or  to  recover  back  mone}*  paid  for  the 
purchase,  without  leave  of  the  Crown,  of  a  commission  in  the  military 
or  naval  service,  as  in  Morris  v.  McCullock,  Ambler,  433;  S.  C.  2 
Eden,  190.  Those  cases  have  sometimes  been  justified  upon  the  ground 
that,  the  agreement  being  against  the  policy  of  the  law,  the  relief  was 
given  to  the  public  through  the  part}*.  Debenham  v.  Ox,  1  Ves.  Sen. 
276;  St.  John  v.  St.  John,  11  Ves.  526,  536;  Cone  v.  Russell,  3 
Dickinson  (48  N.  J.  Eq.),  208.  But  Sir  William  Grant  explained  them 
as  proceeding  upon  the  ground  that  the  plaintiff  was  less  guilty  than 


474          ST.   LOUIS,  ETC.   R.   CO.   V.   TEREE   HAUTE,   ETC.   R.   CO. 

the  defendant.  Osborne  v.  Williams,  18  Ves.  379,  382.  And  Morris 
v.  Me  Cullock  can  hardly  be  reconciled  with  his  decision  in  Thomson 
v.  Thomson,  7  Ves.  470,  or  with  the  current  of  later  authorities. 

The  general  rule,  in  equit}*,  as  at  law,  is  In  pari  delicto  potior  est 
conditio  defendentis  ;  and  therefore  neither  part}-  to  an  illegal  contract 
will  be  aided  by  the  court,  whether  to  enforce  it  or  to  set  it  aside.  If 
the  contract  is  illegal,  affirmative  relief  against  it  will  not  be  granted, 
at  law  or  in  cquit}',  unless  the  contract  remains  executory,  or  unless 
the  parties  are  considered  not  in  equal  fault,  as  where  the  law  violated 
is  intended  for  the  coercion  of  the  one  party  and  the  protection  of  the 
other,  or  where  there  has  been  fraud  or  oppression  on  the  part  of  the 
defendant.  Thomas  v.  Richmond,  12  Wall.  349,  355  ;  /Spring  Co.  v. 
Knowlton,  103  U.  S.  49  ;  Story  Eq.  Jur.  §  298. 

While  an  unlawful  contract,  the  parties  to  which  are  in  pari  delicto, 
remains  executor}',  its  invalidity  is  a  defence  in  a  court  of  law  ;  and  a 
court  of  equity  will  order  its  cancellation  only  as  an  equitable  mode  of 
making  that  defence  effectual,  and  when  necessary  for  that  purpose. 
Adams  on  Eq.  175.  Consequently,  it  is  well  settled,  at  the  present 
da}*,  that  a  court  of  equity  will  not  entertain  jurisdiction  to  order  an 
instrument  to  be  delivered  up  and  cancelled,  upon  the  ground  of 
illegalitj*  appearing  on  its  face,  and  when,  therefore,  there  is  no  danger 
that  the  lapse  of  time  may  deprive  the  party  to  be  charged  upon  it  of 
his  means  of  defence.  Story  Eq.  Jur.  §  700  a,  and  cases  cited  ;  Simp- 
son v.  Howden,  3  Myl.  &  Cr.  97 ;  Ayerst  v.  Jenkins,  L.  E.  16  Eq. 
275,  282. 

When  the  parties  are  in  pari  delicto,  and  the  contract  has  been  fully 
executed  on  the  part  of  the  plaintiff,  by  the  conveyance  of  property,  or 
by  the  paj'ment  of  money,  and  has  not  been  repudiated  b\T  the  defend- 
ant, it  is  now  equally  well  settled  that  neither  a  court  of  law  nor  a 
court  of  equity  will  assist  the  plaintiff  to  recover  back  the  property 
conveyed  or  money  paid  under  the  contract.  Thomas  v.  Richmond, 
above  cited ;  Ayerst  v.  Jenkins,  L.  E.  16  Eq.  275,  284.  For  instance, 
property  conveyed  pursuant  to  a  contract  made  in  consideration  of 
the  compounding  of  a  crime,  and  the  stifling  of  a  criminal  prosecution, 
and  therefore  clearty  illegal,  cannot  be  recovered  back  at  law,  nor  the 
conve}'ance  set  aside  in  equity,  unless  obtained  by  such  fraud  or  op- 
pression on  the  part  of  the  grantee,  that  the  conve}-ance  cannot  be  con- 
sidered the  voluntary  act  of  the  grantor.,  Worcester  v.  Eaton,  11 
Mass.  368,  and  13  Mass.  371 ;  Atwoodv.  Fisk,  101  Mass.  363  ;  Bry- 
ant v.  Peck  &  Whipple  Co.,  154  Mass.  460;  Williams  v.  Bayley, 
L.  E.  1  H.  L.  200;  Jones  v.  Merionetshire  Society,  1892,  1  Ch.  173, 
182,  185,  187. 

Jn  the  case  at  bar,  the  contract  by  which  the  plaintiff  conveyed  its 
railroadand  franchise  to  the  defendant  for  a  term  of  nine  hundred  and 
rrrffSfyHiune  years  was  beyond  the  defendant's  corporate  powers,  am? 
therefore  unlawful  and  void,  of  which  the  plaintiff  was  bound  to  take, 
notice.     The  plaintiff  stood  |n  the  position  ofallenating  the  powers 


ST.   LOUIS,   ETC.   R.   CO.   V.   TERRE   HAUTE,   ETC.   R.   CO.          475 


W-Jiichit  had  received  from  the  State,  and  the  duties  which  it  owed  to 
thepubiic,  to  another  corporation,  which  it  knew  had  no  lawful  capa- 
city^to  exercise  those  powers  or  to  perform  those  duties.  If,  as  the 
plaintiff  contends,  the  non tract  was  also  beyond  its  own  corporate^ 
powers,  it  is  certainly  in  no  better  position.  In  either  aspect  of  the 
case,  the  plaintiff  was  in  pari  delicto  with  the  defendant.  The  in- 


^'  of  the  contractt  in  VJPW  of  the  laws  of  which  both  parties  were 
bound  to  take  notice,  was  apparent  on  its  face.  The  contract  has  been 
fully  executed  on  thp.  part  of  the  plaintiff  b}'  the  actual  transfer  of  its 
railroad  and  franchise  to  the  defendant  ;  and  the  defendant  has  held 
the  property',  and  paid  thft  st.ipn1at.pd  f-npsideration  from  time  to  time, 
forjseventeen  years,  and  has  t.ikpi^  np  steps  to  rescind  or  repudiate  the 
contract^ 

tJpon  this  state^of  facts,  for  the  reasons  above  stated,  the  plaintiff. 
considered  as  a  party  to  the  unlawful  conl^f*,  h*>«  nf>  right  to  invoke 


the  assistance  of  a  court  of  equity  to  set  it  aside._  And  so  far  as  the 
plaintiff  corporation  can  be  considered  as  representing  the  stockholders.. 
and  seeking  to  protect  their  interests,  it  and  they  are  barred  by  laches^ 
Ilarwood  v.  Railroad  Co.  ,  1  7  Wall.  78  ;  Graham  v.  Birkenhead  &c. 
Railway,  2  Hall  &  Twells,  450  ;  8.  C.  2  Macn.  &  Gord.  146  ;  Ffooks 
v.  Southwestern  Railway,  1  Sm.  &  Gif.  142,  164  ;  Gregorys.  Patchett, 
11  Law  Times  (N.  S.)  357. 

This  case  is  not  like  those  in  which  the  defendant,  having  abandoned 
or  refused  to  perform  the  unlawful  contract,  has  been  held  liable  to  the 
plaintiff,  as  upon  an  implied  contract,  for  the  value  of  what  it  had 
received  from  him  and  had  no  right  to  retain.  /Spring  Co.  v.  Knowl- 
ton,  103  U.  S.  49  ;  Logan  County  Hank  v.  Townsend,  139  U.  S.  67, 
and  cases  there  cited. 

J3ut  the  case  is  one  in  which,  in  the  words  of  Mr.  Justice  Miller  in 
a  case  often  cited  in  this  opinion4JJia.ccuirt^w4U-iu3t.di§turb_jbe  posses- 
sion of  the  property  that  has  p.issed  under  the_contract.  butwill_refuse 
to  interfere  as  the  matter  sitan^g  Pennsylvania  Railroadv.  St. 
lton  <fc  Terre  Haute  Railroad,  118  U.  S.  290,  316,  317.  See 
also  Union  Trust  Co.  v.  Illinois  Midland  Co.,  117  U.  S.  434,  468, 
469;  Central  Transportation  Co.  v.  Pullman's  Car  Co.,  139  U.S. 
24,  56,  57,  61. 

Decree  affirmed. 


476      TRUSTEES   OF  DAVIDSON   COLLEGE   V.   CHAMBERS'   EXECUTORS. 

SECTION  IV. 

Bequest  to  Corporation  in  Excess  of  Charter  Authority. 

TRUSTEES   OF  DAVIDSON   COLLEGE  v.  EXECUTORS   AND 
NEXT  OF  KIN  OF  MAXWELL  CHAMBERS. 

1857.     3  Jones  Equity  (North  Carolina),  253.1 

BILL  in  equity,  commenced  in  the  Court  of  Equity  of  Rowan,  and 
removed  to  this  Court  by  consent.  The  bill  was  originally  brought 
against  the  executors  of  Chambers,  alleging  that,  by  the  will  of  Cham- 
bers, legacies  to  a  large  amount  were  bequeathed  to  plaintiffs,  and  that 
assets  sufficient  to  pay  the  same  had  come  to  the  hands  of  the  execu- 
tors ;  and  praying  that  the  defendants  might  be  decreed  to  pay  over  the 
same.  The  cause  was  set  down  for  hearing  upon  the  bill,  answer,  and 
exhibit.  The  Court  remanded  the  case  for  the  purpose  of  making 
additional  parties. 

The  cause  was  remanded  to  the  Court  of  Equity  of  Rowan,  and  in 
that  Court  the  bill  was  amended,  according  to  the  suggestion  of  this 
Court,  by  making  the  next  of  kin  and  the  heirs-at-law  of  Maxwell 
Chambers,  parties  defendant.  Process  was  also  issued  to  the  Attorney 
General  as  the  representative  of  the  State,  and  to  the  trustees  of  the 
University. 

Process  was  also  served  on  several  persons  as  heirs-at-law,  but  it 
appearing  that  they  were  not  such,  their  answers  were  withdrawn. 

Most  of  the  heirs-at-law  live  out  of  the  State,  and  were  not  known  to 
the  counsel  when  the  pleadings  were  sent  up.  It  not  being  essential 
to  a  proper  consideration  of  the  case  that  they  should  be  before  the 
Court,  the  cause  proceeded  without  them. 

The  answer  of  the  next  of  kin  was  filed,  not  dissenting  from  any 
allegation  of  fact  made  by  the  plaintiffs,  and  submitting  to  such  decree 
as  the  Court  might  think  just  and  proper. 

The  cause  was  set  for  hearing  and  sent  up  by  consent. 

An  Act  of  Assembly  passed  at  the  last  session  of  the  Legislature, 
extending  the  corporate  capacity  of  the  plaintiffs,  so  as  to  enable  them 
to  hold  property  to  the  amount  of  $500,000,  and  relinquishing  to  the 
plaintiffs  any  interest  which  the  State  or  University  might  have  in  the 
fund,  was  agreed  to  be  considered  as  regularly  pleaded. 

The  cause  was  again  argued  at  December  Term,  1856. 

Graham,  Osborne  and  Wilson,  for  the  plaintiffs. 

Winston,  sr.,  for  the  executors. 

Jones,  for  the  next  of  kin. 

1  Statement  abridged.    Portions  of  the  opinions  omitted.  —  ED. 


TRUSTEES  OF  DAVIDSON   COLLEGE   V.   CHAMBERS'   EXECUTORS.      477 

Bailey,  Attorney  General,  filed  a  copy  of  the  Act  of  Assembly  above 
mentioned,  and  declined  further  appearing. 

Advisari.  —  At  this  term  the  opinions  were  delivered. 

PEABSOX,  J.  The  charter  of  the  college  (act  of  1838)  enacts  among 
other  things  :  sec.  1,  "  The  trustees  of  Davidson  College  shall  be  able 
and  capable  to  purchase,  have,  receive,  take,  hold,  and  enjoy  in  fee 
simple  or  lesser  estates,  any  land,  &c.,  by  gift,  grant,  devise,  &c.  ; 
and  shall  be  able  and  capable,  in  law,  to  take,  receive,  and  possess  all 
moneys,  goods  and  chattels,  that  have  been,  or  shall  hereafter  be  given, 
sold  or  bequeathed,  for  the  use  of  said  college,  &c."  Sec.  10.  "  Be  it 
further  enacted,  that  the  ichole  amount  of  real  and  personal  estate 
belonging  to  said  college,  shall  not  at  any  one  time  exceed  in  value, 
the  sum  of  two  hundred  thousand  dollars." 

These  words  express,  very  clearly,  the  intentionof  the  Legislature. 
that  this  college  shall  not  own,  at  any  one  time,  more  than  two  hun- 
dred thousand  dollars'  worth  of  property.  The  motives  for  making 
this  restriction,  and  the  policy  upon  which  it  is  based,  are  not  open  to 
enquiry  by  us.  The  restriction  is  made  by  the  act  which  creates  the 
corporation,  and  our  consideration  is  confined  to  its  legal  effect. 

The  testator,  besides  a  devise  of  a  large  amount  of  real  estate, 
bequeaths,  for  the  use  of  the  college,  a.  fund  of  personalty  ,  which,  when 
added  to  the  property  owned  by  the  college  at  the  time  of  his  death, 
will  greatly  exceed  $200,000.  We  have  this  question  :  Is  there  any 
principle  upon  which  this  Court  can  declare,  that  the  college  is  entitled 
to  the  excess  of  the  fund,  after  the  $200,000  is  fully  made  up,  and 
decree  that  the  executors  shall  pa}'  over  such  excess  for  the  use  of  the 
college?  or  are  the  next  of  kin  of  the  testator  entitled  to  the  excess, 
on  the  ground,  that  it  is  not  effectually  disposed  of  by  the  will  ? 

The  general  rule  is  well  settled  :  When  a  legacy,  from  an}-  cause, 
fails  to  take  effect,  the  subject  devolves  upon^ttie  next_of  _kin_-QJL  ihe_ 


^ 

testator,  as  property  undisposed  of  ;  for  an  ineffectual  disposition  is^no 
disposition  at  all.  For  instance,  if  a  legac}1  fails  by  "  lapse,"  i.  e.,  the 
death  of  the  legatee  in  the  life-time  of  the  testator  ;  or  by  reason  of  its 
vagueness,  as  when  the  object  of  the  bounty  is  not  sufficient!}1  described 
to  enable  the  Court  to  say  who  is  to  take  beneficially  ;  Bridges  v. 
Pleasants,  4  Ire.  Eq.  26,  where  the  object  was  "  the  poor  saints  ;  "  or 
because  the  purpose  of  the  testator  is  against  the  policy  of  the  law, 
i.  e.,  to  establish  an  order  of  privileged  slaves;  Lea  v.  Brotcn,  ante, 
142  ;  or,  where  those  for  whose  benefit  the  bounty  was  intended,  refuse 
to  accept  it;  McAuley  v.  Wilson,  1  Dev.  Eq.,  276;  or,  where  those 
for  whose  benefit  the  bounty  is  intended  are  positively  forbidden  by 
law  from  owning  it,  which  is  our  case^  —  made  stronger,  if  possible, 
by  the  fact,  that  the  prohibition  is  expressed  in  the  very  act  by  which 
the  corporation  is  created. 

The  mere  statement  of  the  proposition  seems  sufficient  for  its  solu- 
tion ;  but  as  the  amount  involved  is  large,  and  the  question  a  new  one, 
we  desired  to  hear  all  that  could  be  said  upon  it,  and  to  have  the 


478      TRUSTEES   OF  DAVIDSON   COLLEGE   V.   CHAMBERS'   EXECUTORS. 

authorities  examined ;  for  that  purpose,  as  there  was  not  a  full  argu- 
ment at  the  first  term,  we  directed  the  next  of  kin  and  others  to  be 
made  parties,  and  requested  a  second  argument,  suggesting  in  general 
terms,  that  there  might  be  a  distinction  between  conveyances  executed 
inter  vivos,  and,  possibly,  devises;  to  which  class  of  cases  we  had 
been  referred,  as  establishing  the  distinction  between  a  capacity  "to 
take"  and  "  to  hold"  real  estate,  and  the  devolution  of  property  by 
act  of  law,  and  wills  of  personalty. 

We  are  satisfied,  after  hearing  a  full  argument  in  behalf  of  the 
college,  that  there  is  no  principle  upon  which  a  decree  can  be  made  in 
its  favor,  in  respect  to  the  excess  of  the  fund.  In  England,  under  the 
doctrine  of  cy  pres,  the  Chancellor  would  direct  the  excess  to  be 
applied  to  some  other  charit\',  as  near  as  might  be,  like  that  indicated 
by  the  testator,  and  if  no  other  male  Presbyterian  college  existed,  it 
would  be  applied  to  a  female  college  of  that  denomination.  Attorney 
General  \.  Tonna,  2  Ves.  Jun.  1;  4  Bro.  C.  C.  103;  but  our  Court 
has  never  acted  upon  that  refinement.  McAuley  v.  Wilson,  sup. 

The  cases  of  purchases  of  land  by  aliens  and  corporations,  under 
the  statutes  of  mortmain,  are  not  in  point.  It  is  settled,  that  an  alien 
or  a  corporation  may,  by  purchase,  take  land,  but  cannot  hold ;  and 
the  doctrine  is  put  on  the  ground,  that  if  one  by  an  executed  convey- 
ance, which  is  his  own  act,  passes  land  to  an  alien,  or  corporation,  he 
shall  not  have  it  back  ;  but  it  shall  belong  to  the  sovereign,  upon  office 
found.  It  is  otherwise  in  regard  to  the  act  of  laic.  If  the  heir,  of  one 
dying  seized  of  land,  be  an  alien,  the  law  will  not  cast  the  descent_on 
him,  oecause  he  cannot  bold  beneficially,  and  the  law  will  not~give 
with  one  hand  and  take  away  with  the  other,  but  will  cast  the  descent 
upon  the  next  relation  who  is  capable  of  holding.  For  the  same  rea- 
son, an  alien  husband  does  not  take  as  tenant  by  the  curtesy,  nor  an 
alien  wife  take  dower. 

In  the  case  of  a  will  of  personalt}',  the  property  does  not  pass 
directly  to  the  legatee ;  and  the  law  will  not  require,  or  permit,  the 
executor  to  assent  to  the  legacy,  unless  it  can  take  effect  beneficially, 
according  to  the  intention  of  the  testator ;  but  it  devolves  upon  the 
next  of  kin,  by  the  general  rule,  stated  and  illustrated  above. 

It  was  said,  in  the  argument,  that  as  the  testator's  object  was  a  good 
one  —  the  encouragement  of  learning,  and  his  intention  to  give  this 
fund  to  the  college  was  clear,  the  Court  should  so  decree,  without  look- 
ing at  the  consequences,  and  leave  the  question,  as  to  whether  the 
college  violated  its  charter  by  taking  it,  to  be  settled  upon  proceedings 
instituted  for  that  purpose,  if  the  sovereign  should  see  proper  to  do  so. 
The  reply  to  the  first  proposition  is  :  The  encouragement  of  learning  is, 
in  general,  a  good  object,  but  it  ceases  to  be  so,  when  it  becomes  neces- 
sary to  violate  a  positive  law.  To  the  second  :  Tll's  Court  is  a  co-ordi- 
nate branch  of  the  government ;  it  may  be,  that  had  this  property  been 
y£si-prj_Jn  t.hf>  nnllporp  hy""a"~direct  gift  inter  vivos,  the  power  of  the 
Court  could  not  have  been  called  into  action,  except  upon  proceedings 


TRUSTEES   OF  DAVIDSON   COLLEGE   V.   CHAMBERS*   EXECUTORS.      479 

instituted  by  another  brani!h_pf  the  government ;  but  as  a  case  is  now 
instituted,  it  must  exercise  its  power,  and  there  is  a  solemn  obligation^ 
^resting  upon  it,  not  to  ^id,  or  sanction,  a  violation  of  the  law,  upon 
the  suggestion  that  another  department  of  the  government  can  mpre_ 
properly  see  to  its  redress^ 

ButTtls  asked :  Are  the  plaintiffs  in  a  worse  condition,  because  the 
executors  declined  to  pay  over  the  fund  without  being  protected  by 
the  sanction  of  this  Court,  than  if  they  had  been  willing  to  take  the 
responsibility  of  paying  it  over  without  suit?  Certainly  not.  Upon 
the  death  of  the  testator,  without  having  effectually  disposed_of_thig 
fund,  the  rights  of  the  next  ot'  km  *"  were~vested"  They  could  have 
filed  a  bill  to  prevent  the  executor  from  pa3'ing  it  over,  or  to  follow  the 
fund  in  the  hands  of  the  plaintiffs.  This  is  also  a  full  answer  to  the 
position,  that  the  act  of  the  Legislature,  at  its  last  session,  b}-  which 
the  college  is  allowed  to  own  property  to  the  value  of  $500,000,  and 
all  right  to  the  fund  on  the  part  of  the  State  or  of  the  University  is 
relinquished,  removes  the  objection  to  the  plaintiffs'  recovery.  The 
rights  of  the  next  of  kin  being  vested,  the  act  of  the  Legislature  does 
not  in  anywise  affect  them  ;  so,  the  only  effect  of  the  act,  besides 
enlarging  the  amount  which  the  college  is  now  capable  of  owning, 
is  to  waive  any  right  of  the  State ;  but  as  we  have  seen,  the  State 
had  none. 

This  being  a  bill  against  the  executors  only,  the  personalty  was 
directly  involved ;  but  upon  a  suggestion,  that  the  heirs-at-law  might 
have  an  interest  in  the  question,  whether  the  full  amount  of  the 
$200,000  should  be  made  up  out  of  the  personalty  alone,  or  out  of  the 
personalty  and  realty  devised,  by  rateable  contribution,  it  was  directed 
that  the}*  should  be  made  parties.  We  are  satisfied  that  the  personalty 
is  the  primary  fund,  and  the  requisite  amount  must  be  made  up  out  of 
that  exclusively ;  for  which  the  necessary  enquiry  will  be  directed. 
The  bill  will  be  dismissed  as  to  the  heirs,  without  costs,  as  they  claim 
the  legal  title  to  the  land.  The  question  between  them  and  the  college 
may  be  presented  in  an  action  of  ejectment,  if  the  parties  are  so 
advised. 

BATTLE,  J. 

Hence,  in  England,  and  perhaps  in  this  State,  an  alien  might  take 
real   property   by  devise,    which   would   give  him  a  good  title  to  it, 
as  against  all  persons  but  the  sovereign.     In   analogy   to   this,  the 
counsel  for  the  plaintiffs  have  contended  that  their  clients   have  the 
right  to  take  the  whole  legac}"  bequeathed  to  them  by  Mr.  Chambers, 
though  it  may  be  that  b}T  force  of  the  restrictive  clause  in  their  charter, 
the  State  might,  if  it  saw  fit,  take  from  them  the  excess  over  the  value 
of  the  property  which  they  were  authorized  to  own.     The  argument  . 
w_ould  haveniuch  force  -—perhaps  be  irresistible  —  if  the  Iegacv_vestejd^ 
ajL^ice'^nd'mmeTiiateTy^^der  the  will,  in  the  plaintiffs.     Such  is  the 

-^of  land.     The  devisee  takes  i-fTaLonce  by 


480      TRUSTEES   OF  DAVIDSON   COLLEGE   V.   CHAMBERS'   EXECUTORS. 

force^r__the_win,  and  IIJEL  title  becomes  complete  immediately  uponjthe 
death_of ^thedevisor.  But  the  case  of  a  legacy  is  well  known  to  be 
difforpnt — Upon  t.jifi  ^tator^death,  all  his  personal  grQpertj_becomes_ 
vested  in  the  executor,  who  holds  it  in  trust,  firs^Joi^I^jga^ment-Qf-. 
the  funeral  expenses,  charges  of  administration  and  debts_,  jmd  tbe.D-£QJL, 
the  payment  of  TcgacieT;  and  if  there  bea  residue  undisposed  of  by 
the  will,  he  is  bound,  since  the  act  of  1789,  (see  1  Rev.  Stat.  ch.  46, 
sec.  18 ;  Rev.  Code,  ch.  46,  sec.  24),  to  pay  it  over  to  the  next  of  kin. 
The  legatee  has  no  legal  title  to  the  legac}7  until  the  executor  shall  give 
his  assent  to  it.  So  strong  is  this  rule,  that  if  a  legatee  take  into  pos- 
session a  specific  chattel,  given  to  him  by  the  will,  without  the  consent 
of  the  executor,  the  latter  may  by  a  suit  at  law  recover  it  back  ;  2  Wil- 
liams on  Ex'rs.,  845.  It  is  true,  that  if,  after  the  payment  of  all  the 
debts  and  other  legal  charges  upon  the  estate,  the  executor  withholds 
his  assent  to  a  legacy,  the  legatee  may,  by  a  bill  in  equity,  compel  him 
to  assent  to  it,  and  thereby  give  him  a  title  to  it ;  but  it  is  by  means  of 
a  suit  inequity  alone  that  he  can  get  possession  of  a  legacy,  either 
general  or  specific,  from  an  obstinate  or  dilatory  executor.  It  needs 
the  aid  of  a  court,  then,  to  enable  the  plaintiffs  to  recover  the  legacy 
which  they  claim  ;  and  the  analogy  to  the  case  of  an  alien  cannot  be  of 
much  avail  to  them,  unless  we  find  that  the  law  will  per  se  andproprio 
vigore  cast  an  estate  upon  him,  or  that  a  court  either  of  law  or  equity, 
will  lend  him  its  assistance  to  obtain  it. 

It  seems  to  me,  that,  in  admitting  that  the  State,  upon  office  found, 
or  otherwise,  may  seize  and  take  to  its  own  use,  the  excess,  the  plain- 
tiffs' counsel  virtually  admit  that  it  is  unlawfully  held  by  the  college. 
Why^  so  forfeited  to  the  State  unless  because  the  college  has  it  in  oppo- 
sition to  the  express  prohibition  of  its  charter?  If  unlawful  for  the 
plaintiffs  to  have  it,  can  a  court  of  equity  assist  them  to  get  it?  I 
have,  in  vain,  tried  to  discover  a  principle  upon  which  the  claim  of  the 
plaintiffs  can  be  supported.  The  analogies  of  the  common  law  are 
against  it.  It  is  well  settled,  and  well  known,  that  a  contract,  the  con- 
sideration of  which  induces  to  the  doing  of  an  act,  either  malum  in  se, 
or  malum  prof  libitum,  is  void,  and  no  action  at  law  can  be  sustained 
upon  it.  See  Ingram  v.  Ingram,  4  Jones'  Rep.  188,  and  the  cases 
therein  referred  to.  Will  the  court  of  equity  be  less  sensitive  to  the 
duty  of  upholding  the  law,  or  less  alive  to  the  importance  of  prevent- 
ing its  violation?  I  have  studied  its  principles  to  little  purpose  if  it 
be  so. 

NASH,  C.  J.,  dissentiente. 

Secondly.  Let  it  be  granted,  that  by  taking  the  whole  of  the  prop- 
erty devised,  the  total  amount  in  value  would  exceed  what  the  corpora- 
tion was  entitled  to  possess,  and  thereby  its  charter  might  be  forfeited, 
can  the  defendants,  the  executor,  or  the  next  of  kin,  take  advantage  of 


TKUSTEES  OF  DAVIDSON  COLLEGE  V.  CHAMBERS'  EXECUTORS.   481 

the  bi'each  of  the  condition  in  these  proceedings?  A  charter  is  a  con- 
tract between  the  corporation  and  the  sovereign.  It  is  well  settled 
that  none  but  the  parties  or  their  privies,  can  take  advantage  of  a 
breach  of  a  condition.  Now,  neither  Mr.  Chambers,  nor  his  executor, 
nor  his  next  of  kin,  are  an}-  parties  or  privies  to  the  contract —  upon 
what  principle  then,  is  it,  that  the  executor  can  refuse  his  assent  to  the 
legacy  to  the  college,  or  upon  what  principle  can  the  next  of  kin  claim 
it,  or  any  portion  of  it?  If  Mr.  Chambers,  while  in  life,  had  donated 
to  the  college  two  hundred  thousand  dollars  in  cash  —  or  its  value  in 
property,  specified  in  the  will,  could  he  have  been  heard  in  a  court  of 
justice  to  say,  that  he  had  given  the  corporation  too  much,  and  they 
must  pa}'  back  to  him  as  ranch  of  the  donation  as  was  over  and  above 
what  it  could  legally  hold  or  retain?  Suppose  him  to  have  brought  an 
action  for  the  surplus,  could  he  have  recovered?  Surely  not.  He_ 
would  be  estopped,  and  of  course,  so  would  all  persons  claiming 
inider  iiim^  Gilliam  v.  mrd,  8  ire.  Rep.  280  His  death  cannot  alter 
the  proposition.  Whatever  would  estop  him,  must  estop  his  personal 
representative,  and  must  equally  estop  his  next  of  kin,  who  claim 
through  him.  I  cannot,  therefore,  see  how  either  the  next  of  kin  or 
the  executor  of  Maxwell  Chambers,  can  den}*,  in  this  proceeding,  the 
right  of  the  complainants  to  receive  the  whole  of  the  sum  devised 
them. 

But  again,  I  hold  that  no  one  but  the  State,  as  a  sovereign,  can  call 
the  plaintiffs  to  account  for  receiving,  or  holding,  a  larger  amount  of 
property  in  value  than  is  limited  in  their  charter. 

It  is  objected  that  a  Court  of  Equity  will  not  lend  its  aid  to  the  cor- 
poration to  enable  it  to  violate  its  charter.  Certainly  it  will  not.  But, 
with  great  respect,  it  strikes  me  that  principle  cannot  apply  here. 
[The  learned  Judge  here  contrasted  Bank  of  Michigan  v.  Niles, 
1  Douglas,  401,  cited  by  defendants,  with  JBaird  v.  Bank  of  Wash- 
ington, 11  Serg.  &  Rawle,  411 ;  and  then  proceeded  as  follows  :]  The 
authority  of  the  case  in  Douglas  is  neutralized  by  that  in  Serg.  and 
Rawle,  and  it  differs  from  the  one  before  us.  In  that,  the  bill  was 
brought  to  compel  the  performance  of  a  contract ;  in  this,  to  compel 
the  executor  to  execute  a  trust  by  paying  over  a  legacy.  But  what- 
ever doubt  might  rest  upon  the  case,  is,  in  my  opinion,  entirely  removed 
by  the  act  of  '56,  ch.  94.  See  laws  of  the  State  for  '56,  p.  96.  The 
act  in  its  caption  professed  to  be  made  to  amend  the  act  of  '38  charter- 
ing Davidson  College.  By  the  first  section,  the  10th  section  of  the  act 
of  '38  is  repealed  ;  by  the  2nd,  the  power  of  the  corporation  to  pur- 
chase real  and  personal  property  is  enlarged  to  $500,000 ;  and  by  the 
3rd  section,  the  State  releases  and  conveys  to  the  corporation,  all  right, 
title  afld  interest  which  the  State  had  or  might  have,  in  and  to  the 
estate  and  property  derived  to  it  by  the  will  of  Mr.  Chambers.  This 
act  is  tantamount  to  a  license  by  the  Crown,  and  we  have  seen  by 
the  case  from  3rd  Vesey,  jr.,  and  that  from  Merivale,  that  a  license 

31 


482      TKUSTEES   OF   DAVIDSON   COLLEGE   V.   CHAMBEKS*   EXECUTORS. 

j  /from  the  Crown  will  enable  a  corporation  to  hold  more  property  than 
I  (the  amount  to  which  it  was  originally  limited,  (though  the  license 
flwas  obtained  after  the  death  of  the  donor),  upon  the  principle  that,  by 

the  devise  or  purchase  of  more  property  than  they  were  allowed  to 

hold,  the  legal  estate  vested  in  the  donee,  subject  to  the  will  of  the 

Sovereign. 

It  is  further  objected,  that  the  act  of  '56  could  not  divest  the  next  of 

kin  of  the  interest  which  vested  in  them  at  the  death  of  the  testator. 

The  ahnvfi  cases  glirtw  that  no  interest.  vpatAd   in  thp  npyf.  nf  |^jp1  frvr_if^ 

is  decided  in  them,  that  the  legal  estate  vested  jjp  thp  ^nnopg  But 
there  is  another  answer  to  this  claim  of  the  next  of  kin.  It  is  in 
general  true  that  a  devise  ought  to  take  effect  on  the  death  of  the 
testator ;  but  a  devise  to  a  collegiate  corporation,  not  then  in  exist- 
ence, may  be  good.  Grant  on  Corporations,  123  ;  Attorney  General  v. 
Downing,  Wilmot's  notes,  11  and  13.  In  that  case,  the  devise  was  to 
a  corporation,  to  be  established  in  the  University  of  Cambridge,  and 
to  be  named  after  the  testator,  Downing  College,  in  case  the  Crown 
should  grant  a  charter  incorporating  the  same,  and  a  license  to  hold 
land  in  mortmain.  The  devise  was  held  to  be  good.  Here,  the  cor- 
poration was  in  full  existence  at  the  time  the  will  was  executed  and 
when  the  testator  died.  The  result  of  the  cases  to  which  reference  has 
been  had,  is  that  a  corporaTion  may  take  more  than  the  limit  JiLJiheir 
charter,  but  they  cannot  hold  it  unless  they  obtain  an  extension  by  the 
Crowjk Grant,  104.  No  right  to  any  interest  then,  according  to 
the  authorities,  did  or  could  vest  in  the  next  of  kin.  It  is  only  on 
the  ground,  that  the  sura  devised  to  the  corporation,  taken  in  connec- 
tion with  the  property  they  already  possessed,  would  exceed  the 
amount  they  were  entitled  by  their  original  charter  to  hold,  that  the 
next  of  kin  found  their  claim  to  the  surplus.  And  the  very  objection 
by  the  next  of  kin,  that  Equity  will  not  assist  the  corporation  to  do  a 
wrong,  shows  the  fallac}*  of  the  objection  we  are  now  considering.  It 
cannot  be  that  Jhe  mere  devise  could  constitute  a  breach  of  the  charter. 
To  effect  that,  there  must  be  some  act  of  the  corporation ;  and  at  the_ 
time  of  the  death  of  the  testator,  they  had  committftd  "»  s»»h  ant. 
And  if,  upon  the  enquiry  directed  by  the  Court,  it  should  appear  that 
in  fact  the  property  held  by  the  corporation  does  not  exceed  the  limit 
specified  in  the  original  charter,  then,  surely,  the  next  of  kin  had  no 
vested  right  to  be  disturbed  by  the  act  of  '56,  for  there  would  have 
been  nothing  to  vest.  But,  apart  from  this,  we  have  seen,  from  the 
cases  from  3rd  Vesey-Jr..  and  2nd  Merivale,  and  those  cited  from 
ftfrpTfftrrl  ami  othprsf  that"  although  a  corporation  holds  more  land  than, 
bv  itsjeharter,  it  is  entitled  to  hold,  thelegal  title  is  in  the  corporation^ 
antTThe  heirbas  none.  If  then,  in  this  case,  there  was  no  breach  by 
ttRTpTaintiffs  of  the  charter  under  which  they  claim,  (and  there  c^,n  be 
none,  for  they  have  not  yet  received  any  portion  of  the  donation),  then 
there  can  be  no  valid  claim  on  the  part  of  the  next  of  kin ;  for  the 
devise  is  perfect  and  not  imperfect.  If  the  charter  has  been  violated, 


MATTEK   OF  McGKAW.  483 

no  one  but  the  sovereign  can  claim  the  forfeiture ;  and  as  the  sovereign, 
by  the  act  of '56,  has  waived  its  right  to  vacate  the  charter,  if  there 
was  any  violation  of  it  by  the  corporation,  the  right  of  the  plaintiffs  to 
receive  the  donation  from  the  executor,  is  complete,  and  put  beyond  all 
doubt  in  my  estimation. 
PER  CUKIAM.  Decree  according  to  the  opinion  of  the  Court. 


IN  THE  MATTER  OF  THE  ESTATE  OF   JOHN    McGRAW. 

IN  THE   MATTER  OF  THE  ESTATE  OF  JENNIE 

McGRAW  FISKE. 

1888.     Ill  New  York,  66.1 

APPEAL  from  a  judgment  of  the  Supreme  Court,  which  reversed  a 
decree  made  by  the  Surrogate  of  Tompkins  Count}'  on  the  settlement 
of  the  account  of  Douglass  Boardman,  executor  of  the  will  of  Mrs. 
Jennie  McGraw  Fiske.  The  will  of  Mrs.  Fiske  directed  that  her 
estate  "be  converted  into  money,  or  available  securities,  as  soon  as 
can  be  done,  having  in  view  its  best  interests  and  results."  After 
numerous  bequests  including  a  bequest  of  $250,000  to  Cornell  Univers- 
ity in  trust,  the  will  contains  the  following  residuary  clause :  "  I  give, 
devise  and  bequeath  all  the  rest,  residue  and  remainder  of  my  property 
(if  any  there  shall  be)  to  Cornell  University,  aforesaid,  to  be  added  to 
the  '  McGraw  Librar}'  Fund  '  aforesaid,  and  subject  to  the  trusts,  pur- 
poses, uses  and  conditions  hereinbefore  prescribed  for  said  fund." 

The  Revised  Statutes  provide  that  a  devise  of  real  estate  may  be 
made  to  every  person  capable  b}*  law  of  holding  real  estate  ;  "  but  no 
devise  to  a  corporation  shall  be  valid  unless  such  corporation  be  ex- 
pressly authorized  by  its  charter  or  by  statute  to  take  by  devise."  (2 
R.  S.  57,  ss.  1,  2,  3.)  The  Revised  Statutes  also  enact,  that  the  trus- 
tees of  every  college  chartered  by  the  state  shall  have  power  "  to  take 
and  hold,  by  gift,  grant,  or  devise,  any  real  or  personal  property,  the 
yearly  income  or  revenue  of  which  shah*  not  exceed  the  value  of 
twenty-five  thousand  dollars."  (1  R.  S.  460,  ss.  31-37.)  Cornell 
University  was  incorporated  by  chapter  585  of  the  Laws  of  1865. 
Section  5  of  the  charter  is  as  follows:  "  Sec.  5.  The  corporation  here- 
by created  may  hold  real  and  personal  property  not  exceeding  three 
millions  of  dollars  in  the  aggregate." 

The  husband,  next  of  kin,  and  heirs  at  law,  of  Mrs.  Fiske,  con- 
tended that  Cornell  University,  at  the  date  of  Mrs.  Fiske's  death, 

1  Statement  compiled  from  statement  and  opinion  in  111  N.  Y.  66,  and  statement 
in  45  Hun,  354.  Arguments  and  portions  of  opinion  omitted.  —  ED. 


484  MATTER   OF  McGRAW. 

already  owned  property  exceeding,  in  the  aggregate,  three  millions  of 
dollars. 

The  amount  of  Mrs.  Fiske's  estate  at  the  time  of  her  death,  as  found 
by  the  Surrogate  (including  a  trust  fund  created  under  the  will  of 
John  McGraw,  which  the  Surrogate  held  was  part  of  the  estate  of 
John  McGraw,  but  which  Mrs.  Fiske  had  a  right  to  dispose  of  by  will) 
exceeded  two  millions  of  dollars.  After  deducting  the  legacies  to 
parties  other  than  Cornell  University,  there  was  a  balance  of  more 
than  one  million  which  would  go  to  the  University  if  the  will  were 
carried  out. 

The  Surrogate  decided  that  a  decree  should  be  made : 

1.  That  the  account  of  the  executor  be  allowed. 

2.  That  the  executor  pa}T  over  to   Cornell  University  the  sum  of 
$141,676.72,  being  the  balance  on  hand  and  ready  for  distribution. 

3.  And  adjudging  that  Cornell  University  is  the  owner  and  entitled 
to  all  the  rest,  residue  and  remainder  of  said  estate,  and  directing  said 
executor  to  pay  the  same,  when  sold,  to  Cornell  University,  in  money 
or  in  such  other  form,  or  at  such  other  time,  as  may  be  mutually  agreed 
upon  between  Cornell  University  and  the  executor. 

The  decree  of  the  Surrogate  was  reversed,  upon  appeal,  \)y  the 
General  Term  of  the  Supreme  Court  in  the  Fourth  Judicial  Depart- 
ment. (Reported  45  Hun,  354.)  The  case  was  then  taken,  by  ap- 
peal, to  the  Court  of  Appeals. 

E.  Countryman,  and  S.  D.  HaUiday,  for  appellants. 

Esek  Cowen,  and  George  F.  Comstock,  for  respondents. 

PECKHAM,  J. 

I  think  the  fifth  section  of  the  charter  gives  the  measure  of  the 
power  of  the  university  to  take  as  well  as  to  hold  property.  The  lan- 
guage is  an  authority  as  well  as  a  limitation.  It  is  an  authority  to 
hold  more  than  the  Revised  Statutes  permitted,  but  it  shall  not  be  per- 
mitted to  hold  more  than  a  certain  specified  amount.  And  if  there 
were  nothing  said  on  the  subject  of  property  in  the  charter,  I  think  the 
Revised  Statutes  as  to  the  limitation  for  colleges  would  apply.  Read- 
ing the  language  in  the  charter,  it  is  difficult  to  imagine  a  holding  with- 
out a  previous  taking  of  property,  and  the  counsel  for  the  appellant 
admits  that  if  there  were  no  other  statute  providing  for  a  taking  of 
property,  the  language  of  the  fifth  section  of  the  charter  would  neces- 
sarily imply  a  right  to  take  in  order  to  hold. 

Looking  for  a  moment  outside  of  and  beyond  the  statute  laws  of  the 
state,  and  in  order  to  strengthen  his  position  regarding  the  true  con- 
struction to  be  given  that  law  as  to  the  material  distinction  in  the  case 
at  least  of  a  corporation,  between  the  power  to  take  and  the  power  to 
hold  property,  the  counsel  for  the  appellant  has  made  a  most  able  and 
learned  argument.  Its  outlines  are,  in  substance,  as  follows :  A  cor- 
poration at  common  law  could  take  and  hold  property  by  devise.  At 


MATTER   OF  McGRAW.  485 

an  early  stage  in  the  history  of  the  law  of  England,  relating  to  the 
power  of  corporations  to  hold  real  property,  and  while  the  feudal  sys- 
tem still  prevailed,  it  was  enacted  that  no  man  should  alien  his  feud  to 
a  corporation  under  penalty  of  a  forfeiture  thereof  to  his  next  superior, 
of  whom  he  held  the  land,  and  in  default  of  such  superior  insisting  upon 
the  forfeiture,  then  his  superior  might  do  so,  and  thus  on  until  the 
king,  as  the  general  superior  and  lord  of  all,  was  reached.  But  in  case 
the  forfeiture  was  not  insisted  upon,  the  corporation,  which  had  taken 
a  defeasible  title  to  the  land,  could  hold  it  as  against  all  the  world. 

He  therefore  insists  that  this  distinction  between  taking  and  holding 
strengthens  his  claim  that  the  use  of  the  word  hold  in  the  charter  was 
intentional  and  for  the  specific  purpose  of  permitting  the  corporation  to 
take  an  unlimited  amount  of  property  and  to  hold  on\y  the  amount 
specified.  No  sound  reason  for  giving  such  unlimited  power  to  take, 
while  limiting  the  power  to  hold,  can,  as  it  seems  to  me,  be  stated. 
And  if  such  were  the  intent,  I  think  it  would  have  been  plainly  stated 
in  the  charter  instead  of  trusting  to  such  a  conjectural  application  to  be 
given  to  another  statute. 

The  counsel  cites  about  all  the  writers  upon  the  subject  of  corpora- 
tions, and  they  have  all  adverted  to  this  distinction,  as  existing  in 
relation  to  the  English  corporations  subject  to  the  mortmain  statutes, 
and  the}'  state  that  licenses  to  hold  in  mortmain  were  granted  to  such 
bodies,  J^ut  without  such  licenses  they  took  the  title  tothejreal  prop- 
erty aliened,  subject  only  to  the  right  of  the  superioFTord  to  enter  and 
takethe  land  under  the  power  of  forfeiture.  The  onlj-  penalty,  there- 
fore/which  a  corporation  risked  when  it  took  lands  without  a  license  in 
mortmain  was  that  of  a  forfeiture  of  the  land  to  the  next  superior  of 
the  grantor,  and  so  on  up  to  the  king ;  and  the  counsel  claims  that  in 
this  state,  in  the  case  of  a  corporation  with  unlimited  power  to  take, 
but  not  to  hold  more  than  a  certain  amount,  the  penalty  for  holding 
more  is  that  the  state  representing  the  whole  people  and  standing  in 
this  respect  in  lieu  of  the  king  (there  being  no  mesne  lords),  can  forfeit 
the  charter  of  the  corporation  and  thus  prevent  the  further  holding. 
And  assuming  this  to  be  the  fact,  he  uses  it  as  strengthening  his  argu- 
ment as  to  the  existence  of  this  clear  and  material  distinction  between 
taking  and  holding  property. 

The  further  claim  is  then  made  that,  as  title  to  the  property  has 
vested  in  the  corporation,  which,  in  holding  it,  has  become  subject  to 
the  forfeiture  of  its  charter,  the  heirs  or  next  of  kin  of  the  testator 
have  no  more  right  to  raise  the  question  than  any  other  third  parties 
who  have  no  interest  therein.  It  is  said  that  it  is  a  matter  for  the 
state  alone  to  take  cognizance  of,  and  until  it  does  the  corporation 
holds  the  property,  however  much  it  may  transcend  the  limitation  pre- 
scribed in  its  charter. 

The  counsel  states  accurately  the  law  of  mortmain  in  England  and 
its  consequences  of  possible  forfeiture  of  the  estate  granted,  and,  until 
forfeiture,  the  vesting  of  the  title  in  the  corporation  indefeasible,  except 


486  MATTER   OF  McGRAW. 

by  the  re-entry  of  the  person  entitled  to  take  it  by  reason  of  the  for- 
feiture. But  the  circumstances  under  which  lands  are  held  by  citizens 
of  New  York,  where  their  tenure  is  so  wholly  different  from  that  which 
prevailed  in  England  when  the  early  mortmain  acts  were  enacted, 
render  an}'  argument  in  regard  to  those  acts  and  their  effect  totally 
inapplicable  to  the  case  of  a  corporation  of  this  state.  Taking  the  law 
as  it  exists  in  our  statutes,  including  the  special  provision  upon  the 
subject  in  the  charter  of  the  university,  it  seems  to  me  that  the  pro- 
vision therein,  limiting  the  holding  of  property,  is,  as  I  have  said, 
a  restriction  also  upon  the  power  to  tak§_  in  excess  of  the  specified 
amount.  As,  at  common  law,  a  corporation  could  take  real  property 
in  the  same  way  as  an  individual,  the  consequence  was  that,  in  Eng- 
land, large  landed  possessions  were  held  by  religious  corporations, 
and,  by  reason  of  alienations  of  real  estate  to  them,  the  services  due  by 
the  vassal  to  the  lord  were  partially,  if  not  totalh',  paralyzed,  and  the 
chief  lords  lost  their  escheats.  This  was  a  constantly  growing  and 
alarming  evil.  To  remedy  the  difficulty,  the  first  mortmain  act  was 
placed  in  Magna  Charta,  which  declared  all  such  alienations  to  corpo- 
rations entirely  void,  and  that  the  lands  should  revert  to  the  lord  of  the 
fee.  It  was  held,  however,  that  the  reversion  must  be  accomplished 
by  an  entry,  and  then  and  from  that  time,  there  was  a  forfeiture,  the  cor- 
poration having  taken  the  title  and  held  the  property  until  such  forfeit- 
ure by  re-entry.  (Shelford  on  Mortmain,  8,  34  ;  1  Kydon  Corp.  81; 
Grant  on  Corp.  106.) 

The  nature  of  the  tenure  of  real  property  at  the  time  of  the  passage 
of  the  early  mortmain  acts  in  England  bears  no  resemblance  to  the 
tenure  by  which  a  citizen  of  this  State  holds  lands.  H0rp  thf>re  h  no 


vassal  and  superinrT  huh  the  title  is  absolute  jn  thp.  nwnpi^  and 
only  to  the  liability  to  ftanhgnt.  (Const,  of  N.  Y.,  art.  1,  §  13.)  The 
scufiat  takes  place  when  the  title  to  lands  fails  through  defect  of  heirs. 
(Const,  of  N.  Y.,  art.  1,  §  11.) 

A  devise  to  a  corporation  which  is  forbidden  to  take  (or  forbidden  to 
hold,  if  the  word,  under  the  circumstances  of  the  case,  is  construed  to 
include  a  taking  also)  does  not,  therefore,  give  a  title  subject  to  the 
right  of  some  superior  to  claim  a  forfeitui-e  of  the  land  ;  but  if  it  be  in 
violation  of  a  statute,  I  think  the  devise  is  void  and  thp.  land  rlpsfpnfla 
to  the  heir  or  residuary  devisee. 

We  have  not  in  this  state  re-enacted  the  statutes  of  mortmain  or 
generally  assumed  them  to  be  in  force,  and  the  only  legal  check  to  the 
acquisition  of  lands  by  corporations  consists  in  those  special  restric- 
tions contained  in  the  acts  by  which  they  are  incorporated,  and  which 
usually  confine  the  capacit}'  to  purchase  real  estate  to  specified  and 
necessary  objects.  (2  Kent's  Com.  282.)  Of  course,  the  restrictions 
contained  in  any  general  law,  if  applicable,  must  also  be  referred  to. 

There  is,  by  reference  to  our  laws,  no  such  necessary  and  universal 
distinction  between  taking  and  holding  property  by  corporations,  as  is 


MATTER   OF   McGRAW.  487 

seen  in  the  laws  of  England  relating  to  alienations  in  mortmain. 
Whether  the  legislature,  when  using  language  providing  for  a  limitation 
upon  holding  property,  meant  to  permit  an  unlimited  taking,  is  a  ques- 
tion of  legislative  intent;  and  I  think  the  general  inference  would  be,  in 
the  absence  of  some  plain_jLmj_gontrollin(y  furcumstance  to  the  contrary 
tfiaTthe  legislative  bocTv~meant  to  limit  a  taking  as  well  as  a  holding 
Beyond  the  specified  amount.^ 

The  counsel  for  the  appellant  does  not  claim  that  this  property  was 
itself  forfeited  to  the  state,  if  the  state  should  choose  to  enforce  the 
forfeiture.  His  claim  is,  as  I  understand  it,  that  if  the  university  ex- 
ceeded its  limitation  by  holding  more  property  than  it  was  allowed 
by  law  to  hold,  a  cause  of  forfeiture  of  the  charter  was  thereby  created, 
and  that  in  enforcing  such  forfeiture,  after  the  payment  of  the  debts  of 
the  corporation  the  rest  of  the  property  would  (as  he  insists)  probably 
go  to  the  state  because  there  would  be  no  living  claimant  to  it  who 
would  have  any  right  to  acquire  it.  AJarJ3eiturethe  state  ma}-  claim 
and  may  enforce  at  pleasure,  when  the  occasionanses,  but  it  is  a  for- 
feiture of  the  charter  and  not  a  forfeiture  of  the  property  held  by  the 
corporation.  It  is  further  claimed  that  this  distinction  between  the 
right  to  take  and  the  power  to  hold  property  is  one  which  has  been 
admitted  and  enforced  in  the  courts  of  England,  of  this  state  and  of 
the  other  states  of  the  union  for  a  long  number  of  years  ;  and  that  there 
is  no  reason  why  effect  to  such  a  distinction  should  not  be  given  in  this 
case,  the  result  being,  as  is  stated,  that  the  corporation  has  an  un- 
limited right  to  take  property  and  also  an  unlimited  right  to  hold  it  as 
against  any  one  but  the  state  in  its  capacity  of  sovereign.  There  is 
undoubtedly  a  distinction  between  the  right  to  take  and  the  power  to 
hold  property  under  some  circumstances,  the  only  question  being 
whether  the  legislature  had  such  distinction  in  mind  and  meant  to  pro- 
vide for  it  in  the  case  in  hand.  It  is  said  that  an  alien  has  the  right 
to  take  property  by  purchase,  but  he  cannot  hold  it  as  against  the  state. 
That  is  so.  He  takes,  however,  a  defeasible  title,  good  as  to  all  but 
the  sovereign  power,  which  must  take  it  upon  office  found  or  by 
escheat.  (Wright  v.  Saddler,  20  K  Y.  320.) 

In  such  case  it  is  not  exactly  an  accurate  description  of  the  alien's 
title  to  simply  say  that  he  can  take  but  cannot  hold.  That  is  a  contra- 
diction in  terms.  If  he  take,  he  must  hold,  if  for  but  a  fractional  part 
of  a  second  of  time.  The  expression  is  but  a  short  one  for  the  state- 
ment that  he  cannot  hold,  as  against  the  claim  of  the  state,  where 
properly  made  and  enforced.  The  same  expression  is  used  in  the  case 
of  a  corporation  under  the  mortmain  laws,  that  it  can  take  but  not 
hold,  the  meaning  being  that  it  cannot  hold  as  against  the  claim  for 
forfeiture  when  made  by  the  next  superior  lord  of  the  grantor  of  the 
lands.  That  the  words  lose  all  their  meaning  when  wrenched  from  the 
circumstances  under  which  the}'  were  used,  and  applied  to  corporations 
existing  by  virtue  of  the  laws  of  this  state,  seems  to  me  a  plain 
proposition. 


488  MATTER   OF   McGRAW. 

The  counsel  has,  however,  with  great  industry  and  research,  cited  a 
number  of  cases  from  our  own  courts  and  those  in  other  states,  where 
this  distinction,  he  claims,  has  been  admitted,  and  in  cases,  too,  where 
the  principles  involved  were  similar  to  the  case  at  bar  (one  or  two 
being,  he  says,  precisely  like  it),  and  where  it  has  been  held  that  in 
such  cases,  although  the  corporation  has  violated  the  law  of  its  being, 
yet  no  one  but  the  state  could  take  advantage  thereof. 

I  think  that,  with  the  exception  of  one  case,  they  were  all  entirely 
different  from  this  one,  and  the  decisions  were  based  upon  a  totally  dif- 
ferent and  probably  a  perfectly  unassailable  ground. 

The  principal  case,  or  at  least  one  of  the  early  ones,  is  that  of  Lea- 
zure  v.  Ilillegas  (7  S.  &  R.  313),  which  arose  in  Pennsylvania  and  was 
decided  in  1821. 

The  court  there  held  that  some  portions  of  the  mortmain  laws  of 
England  were  in  force  in  Pennsylvania,  to  the  extent  of  permitting  the 
state,  as  the  sovereign  lord,  there  being  no  mesne  lords,  to  enter  and 
claim  the  forfeiture,  and  that  until  the  state  did  so,  the  title  of  the  cor- 
poration was  good,  and  it  could  convey  such  a  title  to  its  grantee.  No 
such  laws  have  been  in  force  in  this  state. 

Under  the  modern  acceptation  of  the  law  regarding  corporations, 
this  case  could  probably  be  supported  on  an  entirely  different  ground, 
viz.,  that  it  was  an  executed  contract  or  conveyance,  upon  a  good  con- 
sideration, and  that  the  grantor  could  not  be  heard  to  dispute  his  own 
grant  under  the  circumstances ;  and  that  no  one  could  take  advantage 
of  this  violation  of  its  charter  by  the  corporation  excepting  the  state, 
which  could  proceed  to  forfeit  the  charter  because  thereof.  The  case 
is  no  authority  in  this  state  for  the  proposition  that  none  but  the  state 
can  interfere,  nor  is  it  of  an}'  importance  upon  the  question  as  to  how 
material  it  is  to  note  the  absence  of  an  express  limitation  in  words 
upon  the  power  to  take  property  under  the  charter  of  the  university. 

There  is  one  case,  however,  which  has  been  decided  by  the  Supreme 
Court  of  the  United  States  upon  the  question  of  who  may  take  advan- 
tage of  a  violation  of  the  charter  in  relation  to  the  power  to  hold  prop- 
erty, which  comes  very  near  the  case  at  bar.  The  decision  of  that 
court  goes  quite  a  distance  towards  sustaining  the  contention  of  the 
appellant's  counsel,  although  there  was  another  ground  upon  which  the 
decision  could  rest.  The  very  great  respect  which  we  all  feel  for  any 
decision  of  the  Federal  Court  of  last  resort,  and  for  an}*  opinion  given 
by  its  learned  and  able  judges,  even  in  cases  where  it  is  not  binding 
upon  us,  renders  it  necessary  to  examine  the  case  with  some  care.  The 
case  is  Jones  v.  Habersham  (107  U.  S.  174). 

[The  learned  Judge  then  stated  Jones  v.  Habersham,  and  com- 
mented on  the  cases  referred  to  in  the  opinion  given  in  that  case.] 

The  other  cases  cited  in  the  printed  argument  of  the  counsel  for  the 
appellant,  are  mostly  cases  where  a  corporation  has  contracted  with 


MATTER   OF  McGRAW.  489 

parties  on  a  valid  consideration,  and  where  a  conveyance  has  been 
made  and  then  it  is  sought  to  raise  the  question  as  to  the  power  of  the 
corporation  to  take  or  convey  a  title,  and  it  has  been  held  that  in  such 
cases  of  an  executed  contract,  if  the  corporation  has  violated  the  stat- 
ute, the  parties  seeking  to  set  up  such  violation  would  not  be  beard, 
and  in  such  case  none  but  the  state  would  be.  That  one  who  con- 
tracts with  a  corporation  shall  not,  under  such  circumstances,  be  heard 
to  raise  the  question,  is,  in  substance,  the  principle  decided. 

Such  are  the  cases,  in  substance  and  principle,  of  Cowell  v.  Springs 
Co.  (100  U.  S.  55)  ;  Hough  v.  Cook  Co.  Land  Co.  (73  111.  23) ; 
Alexander  v.  Tolleston  Club  of  Chicago  (110  id.  65)  ;  Barnes  v.  Sud- 
dard  (117  id.  237)  ;  Cal.  Tel.  Co.  v:  Alia  Tel.  Co.  (22  Cal.  398)  ; 
Natoma  Water  Co.  v.  Clarkin  (14  id.  544)  ;  Haywood  v.  Davidson 
(41  Ind.  212) ;  Baker  v.  Neff  (73  id.  68) ;  C.  B.  &  Q.  Co.  v.  Lewis 
(53  Iowa,  101)  ;  Land  v.  Hoffman  (50  Mo.  243)  ;  Chambers  v.  City 
of  St.  Louis  (29  id.  576)  ;  Harrow  v.  Nashville,  etc.  Tel.  Co.  (9 
Humph.  304) ;  Baker  v.  Northwestern  Guaranty  Co.  (36  Minn.  185) ; 
Missouri,  etc.,  Co.  v.  JBuchwell  (2  Neb.  192).  I^have  examined  all  of 
these  cases,  and  while  the  facts  are,  of  course,  not  precisely  similar,  yet 
irunpTone  ot'tham  doea  thu  fact  exist  of  a  devise  of  property  to  a  cor- 
poration  which  it  cannot  hold,  because  the  limitation  has  been  reached 
provided  for  by  statute,  and,  of  course,  no  doctrine  that  in  such  a  case 
the  heirs  cannot  claim  the  property,  is  advanced. 

In  most  of  them  the  court  looks  upon  the  question  as  one  of  a  for- 
feiture of  the  charter  on  account  of  a  violation  of  some  limitation 
therein  contained,  and  in  such  case,  it  is  said,  none  but  the  sovereign 
can  raise  such  question. 

The  case  of  Hayward  v.  Davidson  (41  Ind.  212),  was  that  of  a 
devise  of  real  estate  to  county  commissioners  for  the  use  of  the  county. 
The  court  held  that  the  county  was  authorized  to  acquire  and  hold  title 
to  real  property  for  some  purposes,  and  it  could  not  be  made  a  ques- 
tion by  am*  one,  except  the  state,  whether  or  not  real  estate  acquired 
by  such  county  has  been  thus  acquired  for  authorized  purposes  or  not. 
That  the  title  passed  under  the  power  of  the  county  to  take  real  estate 
for  some  purposes,  but  the  court  also  said  if  the  charter  or  the  law  has 
forbidden  a  corporation  to  take,  then  a  deed  or  devise  passes  no  title. 

jn  the  case  at  bar,  where  the  statute  authorizes  the  corporation  to 
hold  not  exceeding  a  limited  amountT  js  it  not  the  same  thing,  in  sub- 
"STance,  as  a  prohibition  against  holding  andT  Ihp.refnre,  n.  prolijhitinn 
against  taking  any  more?  And  when  the  limit  is  reached,  is  it  not  the 
same  as  an  original  prohibition  against  taking  any?  In  Chambers  v. 
City  of  St.  Louis  (supra},  the  court  held,  also,  that  there  was  a  right 
in  the  cit}*  to  take  and  hold  lands,  and  if  there  were  a  capacity  in  the 
vendor  to  convey,  so  soon  as  there  was  a  conveyance  there  was  a  com- 
plete sale,  and  if  the  corporation,  in  purchasing,  violates  or  abuses  the 
power  to  do  so,  that  is  no  concern  of  the  vendor  or  his  heirs.  It  is  a 
matter  between  the  state  and  the  city.  This  case  rests  upon  the  same 
principle  above  alluded  to. 


490  MATTER   OF   McGRAW. 

In  the  case  of  Vidal  v.  Girard's  Executors  (2  How.  [U.  S.]  127), 
the  trusts  created  by  the  will  of  Stephen  Girard  were  held  valid,  and 
the  court  said  that  in  such  a  case,  if  the  corporation  were  incompetent 
to  execute  them,  the  heirs  could  not  take  advantage  of  such  fact,  as 
that  could  only  be  done  by  the  state  by  quo  warranto  or  other  judi- 
cial proceeding.     This  is  upon  the  ground  that  the  trust  was  a  valid 
\  trust,  and  if  so,  and  the  corporation,  as  such,  had  no  power  to  execute. 
lit,  the  trust  did  not,  for  that  reason,  fail,  but  upon  the  failure  of  the 
1  corporation  for  lack  of  power,  to  execute  it,  a  court  of  equity  would 
lappoint  a  new  trustee.     Of  course,  the  heirs  had  no  interest  in  the 
question  when  once  the  trust  was  declared  valid,  whether  the  corpora- 
tion was  exceeding  its  power  in  taking  upon  itself  the  execution  of  the 
trust  or  not.     They  had  no  title  to  or  any  further  interest  in  the  prop- 
erty.    They  stood,  therefore,  in  respect  to  the  corporation,  as  any 
other  strangers.     The  case  does  not  aid  the  appellant  upon  the  matter 
under  review. 

I  have  not  yet  referred  to  all  the  cases  cited  by  the  indefatigable 
counsel  for  the  appellant,  but  I  have  read  them  all,  and  in  not  one  is 
the  question  fairly  up  and  decided  in  the  way  he  asks  the  court  to 
decide  this  case. 

The  counsel  refers  to  the  general  doctrine  of  ultra  vires  in  respect  to 
corporations,  and  shows  that,  as  matter  of  fact,  corporations  have 
power  to  violate  the  law  of  their  existence,  or,  in  other  words,  to  do 
wrong ;  and  he  cites  Bissel  v.  .Railroad  Company  (22  N.  Y.  259)  ; 
Whitney  Arms  Company  v.  Barlow  (63  id.  63)  ;  Atlantic  State  Bank 
v.  Savery  (82  id.  292)  ;  'Eider,  etc.,  v.  Roach  (97  id.  378). 

The  theory  upon  which  the  plea  of  ultra  vires  is  examined  is  that  it 
will  not,  as  a  general  rule,  prevail  whether  interposed  for  or  against  a 
corporation,  when  it  will  not  advance  justice  but  will  accomplish  a 
legal  wrong.  (See  above  cases.) 

I  do  not  perceive  that  an}'  assistance  accrues  to  the  appellant  from  a 
presentation  of  this  doctrine.  There  is  no  question  between  these 
parties  of  a  contract  nature,  nor  any  fact  which  ought  to  preclude  the 
respondents  from  setting  up  any  legal  bar  to  the  right  of  the  corpora- 
tion to  take  title  to  property  which  they  claim  either  as  heirs-at-law  or 
as  legatees  or  devisees. 

The  cases  of  the  Elevated  Railroad  (70  N.  Y.,  327,  338)  and  Moore 
v.  Brooklyn,  etc.,  Railroad  (108  id.  98,  104)  are  cited  to  show  that 
none  but  the  sovereign  can  take  advantage  of  a  forfeiture  of  the 
charter,  and  that  must  be  in  a  direct  proceeding  against  the  corpora- 
tion. The  principle  is  undenied.  But  in  a  case  like  this  it  is  no  for- 
feiture that  is  being  insisted  upon.  It  is  simply  a  question  of  title  to 
the  property,  and,  provided  it  has  not  been  legally  devised  or  be- 
queathed, it  necessarily  vests  in  the  heir  or  next  of  kin. 

But  it  is  said  that  where  property  is  given  to  a  corporation  which 
bas  power  to  take  or  hold  under  some  circumstances,  the  title  vests  in 


MATTEE  OF  McGKAW.  491 

the  corporation,  for  otherwise  the  state  would  never  obtain  the  right  to 
forfeit  even  the  charter  for  a  violation  thereof.  The  argument  is,  the 
corporation  would  answer  a  claim  to  forfeit  the  charter  by  the  fact  that 
the  charter  precluded  it  from  taking  such  property,  and,  therefore,  as 
it  could  not,  it  had  not  done  so.  I  do  not  see  the  force  of  the  argu- 
ment. The  charter  may  preclude  the  rightful  taking  of  the  property 
by  the  corporation,  and  may  prevent  the  legal  title  from  vesting  in  it, 
but  that  hasjiothing  to  do  with  the  fact  that,  nevertheless,  the  corpo- 
ration has,  aslt  physical  act,  taken  the  property  and  may  be  insisting 
upon  its  right  to  keep  it  as  matter  of  lawL  In  such  casejgir^there  be 
any  doubt  that  the  corporation  has  taken  and  is  holding  ^be  property 
as  its  own  and  in  defiance  of  the  charter,  and  that  it  may  be  punished 
b"y~1iavtD^  Us  charter  forfeited,  although  the  rightful  owner  of  the 
property  may  thereafter  obtain  bis  own  ?  The  fact  that  he  does  obtain 
it  is  ncT  answer  to  the  other  fact  that  the  corporation  had  taken  it,  nor 
is  it  any  legal  answer  to  the  claim  of  forfeiture  of  the  charter,  on  the 
part  of  the  state,  that  it  was  unsuccessful  in  continuing  to  hold  the 
property  against  the  charter  provisions. 

Although  we  never  adopted  or  enacted  the  English  statutes  of  mort- 
main, yet  in  this,  as  in  other  states,  we  have  a  decided  mortmain 
policy.  It  is  found  in  our  statute  in  relation  to  wills,  prohibiting 
a  devise  to  a  corporation  unless  specially  permitted  by  its  charter  or 
by  some  statute  to  take  property  by  devise. 

The  counsel  claims,  however,  that  a  devise  to  a  corporation  vests 
the  title  in  it,  so  far  as  the  question  of  capacity  is  concerned,  whenever 
it  would  in  the  case  of  a  sale  for  a  valuable  consideration.  Hence  he 
says  that  the  cases  of  sales  above  cited  are  decisive  of  this,  if  they  be 
admitted  as  well  decided.  In  the  case  of  an  executed  sale,  however, 
the  question  of  ultra  vires,  as  set  forth  in  the  modern  cases,  comes  in 
play,  and  the  question  of  a  want  of  title  in  the  corporation  in  such  case 
would  not  be  permitted  to  be  raised  by  the  grantor  or  his  heirs,  be- 
cause it  would  be  against  justice  and  would  accomplish  a  legal  wrong. 
(Whitney  Arms  Co.  v.  J2arlow,  63  N.  Y.  62.) 

The  question  of  an  executed  gift  without  consideration  bjr  a  donor, 
b}'  an  absolute  delivery  to  a  corporation  without  power  to  take,  is  also 
instanced,  and  the  question  is  asked  whether  the  title  vests  in  such 
a  case  in  the  corporation  so  that  the  donor  or  his  heirs  could  not  re- 
over  it  back,  and  if  it  do,  the  counsel  asks  where  is  the  difference  in 
the  two  cases.  It  is  time  enough  to  decide  such  a  case  when  it  arises. 
But  it  seems  to  me  there  is  a  decided  difference.  Jji  t.hft  orm  Q^SR  the, 
giftjs  made  inter  vivos  by  the  absolute  owner,  and  it  is  made  effectual  as 
"to_him  by  a  deliven*. In  such  case  it  would  seem  that  he  stands  in  no 
position  to  ask  the  aid  of  the  court  to  get  him  out  of  a  situation  into 
which  he  voluntarily  entered  with  his  63Tes  open,  and  the  court  might 
well  say  to  him  that  he  stood  in  no  position  to  attack  the  right  of  his 
donee  to  property  which  he  freely  and  absolutely  gave  it.  As  to  his 


\ 


492  MATTER  OF  McGRAW. 

jipirg_ii^  POnld    hfi    said    that   thpf1'   *no.e<itnr  \\nr1    made   a   disposition  of 

property  which  was ^absolutely  hia own  in  his  life-time,  and  in  such  a 
way  that  he  could""^*  questing  its  validityr  and  that  as  he  could  nok_ 
they  succeeding  only  to  his  rights,  were  alike  disabled* 

In  the  case  of  a  devise,  however,  the  case  is  essentially  different. 
The  will  does  notj,ake  effect jmtil  the  testator's  death,  and  then,  if  his^ 
property  is  not  legally  devised  or  bequeathed,  no  title  vests  for  a  single 
inoment  in  the  devisee  or  legateet  but  iLvasts  instantly  in  the  heir  or 
next  of  kin  ;  and  the  corporation  claiming  under  the  will  asks  the  aid 
of  the  law  to  give~the  property  toll,  and  in.sn  doing  it.  trmHt_shn^r  |% 
authority  it  has  to^takg.  Andlfthere  were  only  a  prohibition  in  words 
against  holding  the  property,  would  the  law  not  be  doing  a  vain  thing 
in  handing  it  over  to  a  corporation  which  by  the  very  fact  of  holding 
would  render  itself  liable  to  have  its  charter  forfeited  on  that  account? 
Would  not  the  prohibition  against  holding  be  properly  and  necessarily 
construed  as  a  prohibition  against  taking  also? 

Is  not  this  an  argument  against  the  right  of  the  corporation  to  take, 
if  by  holding  it  is  thus  rendered  liable  to  such  a  penalty  ?  And  is  it 
not  an  argument  in  favor  of  the  construction  of  the  language  in  the 
charter  that  the  limitation  upon  the  power  to  hold  property  is,  under 
all  the  circumstances,  a  limitation  upon  the  power  to  take  any  more 
than  it  can  legally  and  properly  hold  ? 

[After  referring  to  the  fact  that  the  legislature,  subsequently  to  the 
death  of  Mrs.  Fiske,  passed  an  act  which  took  away  any  limitation  on 
the  power  of  the  university  to  hold  property.] 

However  perfect  ma}*  be  the  waiver  in  the  act  alluded  to,  of  the 
.right  of  the  state  to  forfeit  the  charter  of  this  university  on  account  of 
Jany  alleged  violation  thereof,  such  act  can,  of  course,  have  no  possible 
[effect  upon  rights  of  property  which  vested  at  the  death  of  Mrs.  Fiske 
and  before  the  passage  of  the  act  in  question.  (  White  v.  Howard,  46 
N.  Y.  144.) 

The  counsel  asks  what  is  to  be  done  in  regard  to  the  real  property  in 
other  states,  if  we  hold  this  corporation  has  no  power  to  take  any  more 
property?  It  is  said  the  surrogate  has  found,  as  &fact,  that  the  uni- 
versity had  legal  capacity  to  take  and  did  take  by  devise  all  the  real 
property  the  title  to  which  was  in  Mrs.  Fiske  at  the  time  of  her  death, 
in  those  states.  He  says  the  title  to  real  estate  is  governed  by  the 
laws  of  the  states  where  the  real  property  is  situated  ;  and  that  in  the 
states  in  question  it  is  held  that  a  corporation  can  take  under  such 
circumstances  as  this  case. 

This  will  devises  no  real  estate  to  Cornell  University.  It  gives  to 
the  university  $40,000  in  trust  for  the  erection  and  furnishing  and 
support  and  maintenance  of  a  hospital ;  $50,000,  in  trust,  for  com- 
pleting and  perfecting  the  McGraw  building;  $200,000,  in  trust, 
for  the  McGraw  library  fund,  and  it  gives  and  devises  the  residue 
of  the  property  of  the  testatrix,  if  any,  to  be  added  to  the  last  men- 


BANK   OF  MICHIGAN   V.   NILES.  493 

tioned  fund.  It  then  directs  that  the  estate  of  the  testatrix  shall  be 
converted  into  money  or  available  securities  by  her  executor  as  soon 
as  it  can  be  done,  having  in  view  the  best  interests  of  the  estate.  This 
operatgd_jas  an  equitable  conversion  of  the  estate 


_ 

of  the  testatrix  into  money  or  available  securities,  and  hence  no  rgal 
estate  in  other  states  nasjjeen  devised  by  her  to  the  'university-^.  It  is 
needless  to  inquire  what  would  have  been  the  rule  in  case  real  estate 
in  other  states  had  been  specifically  devised  to  the  university,  while  > 
this  court  should  at  the  same  time  decide  that  it  held  property  up  to  its 
charter  limit,  and  that  it  had  no  capacity  to  take  or  hold  an}7  more  real 
or  personal  property  than  the  amount  specified  in  its  charter. 

Upon  a  review  of  the  whole  question  as  to  the  proper  construction  of 
the  legislation,  general  and  special,  affecting  this  university,  I  am  of  the 
opinion  that  it  had  no  power  to  take  or  hold  an}-  more  real  and  per- 
sonal property  than  $3,000,000,  in  the  aggregate. 

Second.  Coming  to  the  conclusion  I  have,  on  the  first  branch  of  the 
case,  it  becomes  necessary  to  examine  the  second  and  only  remaining 
question,  viz.  :  Does  this  property,  if  taken  and  held  by  the  university, 
exceed  the  amount  which  by  law  it  can  hold? 

[The  court  held,  that  the  property  of  the  university,  at  the  time  of  the 
decease  of  Mrs.  Fiske,  amounted  to  more  than  "  its  permitted  aggre- 
gate "  ;  and  that,  under  such  circumstances,  the  university  could  not 
take  the  various  legacies  bequeathed  to  it  by  her  will.] 

Judgment  of  General  Term  affirmed. 

All  concur,  except  FINCH,  J.,  taking  no  part. 


SECTION  V. 

Suits  for  Specific  Performance  of  Contracts  which  are  in  Excess 
of  Charter  Authority ;  or  for  Declarations  of  Trust  for 
Purposes  in  Excess  of  Charter  Authority. 

BANK  OF  MICHIGAN  v.   NILES. 

1842.     Walker's  Chancery  Reports  (Michigan),  99. 

THE  bill  in  this  case  was  filed  to  obtain  the  specific  performance  of  a 
contract  entered  into  by  the  parties  on  July  1st,  1839.  The  complain- 
ants bound  themselves  to  conve}"  to  defendant,  within  sixty  da3~s  there- 
after, certain  real  estate  described  in  the  contract,  and  to  obtain  from 
one  Jeremiah  H.  Pierson  a  good  and  sufficient  deed  of  the  Rochester 
mill  property,  and  convey  to  him  three  undivided  fourth  parts  of  it ; 


494  BANK   OF  MICHIGAN   V.   NILES. 

and,  in  case  a  mortgage  should  be  given  by  them  on  the  mill  property, 
for  the  purchase  money,  they  covenanted  to  pay  the  incumbrance,  and 
cause  it  to  be  discharged  within  five  years.  The  defendant,  in  return, 
agreed  to  execute  a  mortgage  to  complainants  for  the  purchase  money 
to  be  paid  by  him,  amounting  to  $28,000,  on  the  property  to  be  con- 
veyed, and  on  certain  other  property  named  in  the  contract.  Within 
(the  sixty  days,  .complainants  purchased  and  obtained  a  deed  of  the  mill 
property  from  Pierson,  for  $5,000,  which  they  paid  and  secured  to  be 
paid  to  him.  They  then  made  out  and  executed  a  deed  to  defendant 
for  three-fourths  of  it,  with  the  other  property  they  were  bound  by  the 
contract  to  convey  to  him,  and  were  ready  and  willing  to  perform  their 
part  of  the  contract. 

The  defendant  demurred. 

G.  M.  Williams  and  A.  D.  JFraser,  in  support  of  the  demurrer. 

tT.  F.  Joy,  contra. 

THE  CHANCELLOR.  The  first  objection  made  by  defendant  is,  that 
the  bank  had  no  authority  under  its  charter  to  make  such  a  contract  as 
that  disclosed  by  the  bill ;  and  that  this  Court  will  not,  for  that  reason, 
decree  a  performance  of  it. 

The  third  section  of  the  act  of  incorporation  concludes  with  these 
words:  "The  President,  Directors  and  Company  of  the  Bank  of 
Michigan  shall  be  in  law  capable  of  purchasing,  holding  and  con- 
veying any  estate,  real  or  personal,  for  the  use  of  the  said  corpora- 
tion." By  the  ninth  section  it  is  provided,  "  That  the  lands,  tenements 
and  hereditaments,  which  it  shall  be  lawful  for  the  said  corporation  to 
hold,  shall  be  onhr  such  as  shall  be  required  for  its  accommodation  in 
relation  to  the  convenient  transacting  of  its  business,  or  such  as  shall 
have  been  bonafide  mortgaged  to  it  by  way  of  security,  or  conveyed  to 
it  in  satisfaction  of  debts  previously  contracted  in  the  course  of  its 
dealings,  or  purchased  at  sales  upon  judgments,  which  shall  have  been 
obtained  for  such  debts." 

The  power  given  by  the  third  section  to  purchase,  hold  and  convey 
real  estate,  is  limited  by  the  ninth  section  to  specific  objects.  Taking 
the  two  sections  together,  the  intention  of  the  legislature  is  clear,  and 
but  one  construction  can  be  given  to  them.  It  was  intended  tbatJJia. 
corporation  should  have  power  to  purchase  real  estate  for  the  con- 
venient transaction  of  its  business,  or  to  secure  a  debt ;  but  not  for  the 
jjurpose  of  Investing  its  capital,  or"  of  speculating  in  lands,  or  of  buying 
them  merely  to  sell  againT I  have  no  doubt  this  is  the  true  construction 
of  the  charter.  A  different  construction  would  enable  the  corporation 
to  buy  and  sell  real  estate  at  pleasure,  and  render  entirely  nugatory  the 
restriction  imposed  b}T  the  ninth  section.  The  corporation,  then,  ex- 
ceeded its  powers,  and  contracted  to  do  what  it  had  no  right  to  do 
under  its  charter,  when  it  covenanted  to  purchase  the  mill  property  of 
Pierson,  and  convey  three-fourths  of  it  to  defendant.  It  was  an  agree- 
ment to  bivy  real  estate  of  one  individual  to  sell  to  another ;  —  a  contract 
to  violate  its  charter,  by  embarking  in  a  business  with  which  it  had  no 


CASE   V.   KELLY.  495 

\ 

right  to  meddle ;  —  a  contract  which,  for  that  reason,  this  Court  cannot, 
consistently  with  equitable  principles,  assist  the  complainants  to  carry 
into  execution.  Equity  will  aid  no  one  in  doing  that  which  is  unlawful. 

The  purchase  of  the  mill  property  of  Pierson  for  $5,000,  after  the 
contract  was  made,  makes  no  difference ;  for  it  was  done  under  the 
contract,  and  in  part  performance  of  it.  The  case  of  The  Banks  v. 
Poitiaux,  3  Rand.  R.  136,  goes  no  further  than  this,  that  the  corpora- 
tion having  purchased  the  land,  might  make  a  deed  of  it ;  not  that  it 
might  make  a  contract  with  A.  to  purchase  the  lands  of  B.,  and  sell 
them  to  A.,  which  is  the  case  before  me. 

It  is  unnecessary  to  decide  the  other  questions  made  on  the 
argument. 

Demurrer  allowed. 

NOTE.    This  case  was  affirmed  on  appeal.    [1  Douglas,  Michigan,  401.] 


CASE  v.   KELLY. 

1890.     133  U.  S.  21. 1 

APPEAL  from  the  U.  S.  Circuit  Court  for  the  Eastern  District  of 
Wisconsin. 

The  plaintiff,  Case,  receiver  of  the  Green  Bay  &  Minnesota  R.  R. 
Co.,  was  ordered  by  the  Court  (in  a  suit  to  foreclose  a  mortgage  given 
by  the  R.  R.  Co.)  to  take  possession  of  all  the  corporate  property,  and 
was  authorized  to  bring  suits  in  the  name  of  the  company.  Case,  as 
receiver,  brought  the  present  bill  in  equity,  stating  that  he  sues  in 
behalf  of  the  company  and  as  receiver. 

The  allegations  of  the  bill  are,  that  the  defendants  Kelly,  Ketchum 
and  Hiles,  who  were  officers  of  the  railroad  company  during  its  period 
of  construction,  had  procured  numerous  donations  of  land  from  citizens 
who  were  interested  in  the  construction  of  the  road,  along  its  line, 
intended  to  be  for  the  use  and  benefit  of  the  railroad  company,  and  to 
assist  it  in  such  construction.  The  fundamental  allegation  of  the  bill 
is,  that  these  defendants,  representing  to  the  persons  who  made  the 
donations  that' they  were  omcers  of  the  road,  and  soliciting  these 
grants  for  the  benefit  of  the  road,  took  the  conveyances  to  themselves 
WHvjidnnliy  ;  t.h^t  t.hoy  riiri  thfa  in  a  fraudulent  manner,  by  making  the 
grantors  in  the  conveyances  believe  that  the}-t  as  the  officers  of  the 
company,  could  receive  the  conveyances  for  the  benefit  of  the  road ; 
and  that  either  the  grantors  did  not  really  know  to  whom  the  convey - 
ances_jwere  made,  or  were  induced  to  bfMflYP  *****  whpr|  made  the 
grantees  held  the  lands  as  a  trust  for  the  benefit  of  the  road.  These 

1  Statement  abridged.    Arguments  and  part  of  opinion  omitted.  —  ED. 


496  CASE  V.   KELLY. 

defendants  not  recognizing  this  trust,  and  the  conveyances  on  their 
faces  being  merel}*  conveyances  to  the  individuals,  either  separately  or 
collective^*,  to  wit :  to  Ketchum,  Kelly  and  Hiles,  who  now  refuse  to 
conygy  to  thecompany  or  to  admit  its  right  to  the  jands,  this  suit  is 
brought  tohave  a  declaration  of  tae  trust  "macTe^by  the~court  ancTa 
decree  ordering"  conveyances  by  tlie  defendants  of  the"  land  to  the 
corporation. 

"It  is  further  alleged  that  the  mortgage  in  process  of  foreclosure  in 
the  court  under  which  Case  is  acting  as  receiver  covered  all  the  lands 
of  the  corporation,  and  would  cover  these  lands  if  the  title  of  the 
corporation  in  them  was  established. 

Answers  were  filed,  and  evidence  taken.  Upon  the  hearing,  the 
Circuit  Court  was  of  opinion  that  the  aforesaid  conveyances  were  made 
by  the  grantors  and  received  by  the  defendants  as  contributions  to  the 
railroad  company  to  aid  in  the  construction  of  the  road.  The  Court 
wasjtlsQ  of  npjnjon  \\)$t,  t.hfi  Company  could  only  receivejuidhold  lands 
for  the  necessarj*  purposes  of  the  roacL  The  decision  wasTthat  plamtiTT 
was  entitled  to  recover  the  title  ana  possession  of  all  such  lands  as  are 
required  by  thecompany  for  necessary  railroad  purp55H»j(»uoU  as  Tight 
of  way,  depots,~Sc.)  ;  and  tnat  the  "Bill,  as  to  all  other  portions  of  the 
land  described  therein,  should  be  dismissed. 

Walter  C.  Lamed  and  Herbert  M.  Turner,  for  appellant. 

George  H.  Noyes,  for  Hiles,  appellee. 

MILLER,  J.  [After  holding  that  the  company  had  no  authority  to 
receive  an  indefinite  quantity  of  lands,  whether  by  purchase  or  gift,  to 
be  converted  into  money  or  held  for  any  other  purposes  than  those 
mentioned  in  the  act  of  incorporation] 

It  is  next  objected  to  the  principle  adopted  by  the  court  that  the 
limitation  upon  the  power  of  the  corporation  to  receive  land  is  one 
which  concerns  the  State  alone,  and  the  title  to  such  lands  in  a  cor- 
poration can  only  be  defeated  by  a  proceeding  in  the  nature  of  a  quo 
warranto  on  behalf  of  the  State.  The  case  of  National  JBank  v. 
Matthews,  98  U.  S.  621,  is  strenuously  relied  on  to  support  this  view. 
We  need  not  stop  here  to  inquire  whether  this  company  can  hold  title 
to  lands,  which  it  is  impliedly  forbidden  to  do  b}'  its  charter,  because 
the  case  before  us  is  not  one  in  which  the  title  to  the  lands  in  question 
has  ever  been  vested  in  the  railroad  company,  or  attempted  to  be  so 
vested.  The  railroad  company  is  plaintiff  in  this  action,  and  is  seeking 
to  obtain  the  title  to  such  lands.  It  has  no  authority  by  the  at.atntej,o 
receive  such  title  and  to  own  such  lands,  and  the  question  here  is,  not 
whether  the  courts  would  deprive  it  of  such  lands  if  they  had  been  con- 
veyed to  it.  but  whether  they  will  aid  it  to  violate  the  law  and  obtain  a 
title  which  it  has  no  power  to  hold.  We  think  the  questions  are  very 
different  ones,  and  that  while  a  court  might  hesitate  to  declare  the  title 
to  lands  received  already,  and  in  the  possession  and  ownership  of  the 
company,  void  on  the  principle  that  they  had  no  authority  to  take  such 
lands,  it  is  very  clear  that  it  will  not  make  itself  the  actiyejagent  in 


NASSAU   BANK   V.   JONES   ET   AL.  497 

behalf  of  the  company  in  violating  the  law  and  enabling  the  company^ 
to  do  that  wiiica  the  lawjforbids. 

We  are  urged  to  consider  that  if  this  decree  is  affirmed  dismissing 
the  bill  of  the  railroad  company,  the  defendants  will  be  left  in  the 
possession  of  property  fraudulently  acquired,  of  considerable  value,  for 
which  they  gave  no  consideration.  The  answer  to  this  is,  that  such 
question  cannot  be  raised  b}"  the  plaintiff  in  this  case,  because,  having 
no  right  to  take  the  property,  it  is  not  injured  by  a  decree  of  the  court 
which  fails  to  grant  such  right.  The  other  questions  must  be  between 
the  defendants  in  this  case  and  those  from  whom  they  took  deeds  of 
conveyance,  or  such  other  parties,  public  or  private,  as  may  show  that 
they  have  an  interest  in  the  controversy. 

The  decree  of  the  Circuit  Court  is  Affirmed. 

MR.  CHIEF  JUSTICE  FULLER  did  not  hear  this  case  and  took  no  part 
in  its  decision. 


SECTION  VI. 

Ultra  Vires  Contract  remaining  wholly  executory  on  both  Sides, 
or  Executed  only  in  Part  by  either  Side.  Action  for  Breach, 
or  for  Cancellation. 

NASSAU  BANK  v.   JONES  ET  AL.  EX'RS. 

1884.     95  New  York,  115.1 

APPEAL  from  judgment  of  the  General  Term  of  the  Superior  Court 
of  the  city  of  New  York,  entered  upon  an  order  made  April  9,  1883, 
which  affirmed  a  judgment  in  favor  of  defendants,  entered  upon  a 
decision  of  the  court  on  trial  at  Special  Term.  (Reported  below,  17 
J.  &  S.  498.) 

This  action  was  brought  against  defendants  as  executors  of  the  will 
of  Daniel  Jones  to  compel  them  to  transfer  and  deliver  to  plaintiff  fifty 
$1,000  bonds  and  one  hundred  and  twenty-five  shares  of  the  stock  of 
the  Denver  and  Rio  Grande  Railroad  Company,  or  to  account  for  and 
pa}-  over  the  value  thereof  and  all  interest  and  dividends  received  -by 
their  testator  thereon. 

The  material  facts  are  stated  in  the  opinion. 

Samuel  Sand,  for  appellant. 

Martin  J.  Keogh,  for  respondent. 

1  Arguments  and  part  of  opinion  omitted.  —  ED 
32 


498  NASSAU   BANK  V.   JONES   ET   AL. 

RDGER,  Ch.  J.  The  question  involved  in  this  case,  as  we  regard  it, 
is  the  right  of  a  banking  corporation  chartered  under  the  laws  of  this 
state  to  subscribe  for  the  stock  of  a  railroad  corporation. 

In  the  spring  of  1879,  the  Denver  and  Rio  Grande  Railroad  Com- 
pany, being  a  corporation  organized  to  construct  railroads  in  Colorado 
and  adjoining  territories,  with  the  view  of  raising  money  to  extend  its 
lines,  published  a  circular,  whereby  it  proposed  in  substance,  to  issue 
$5,000,000,  of  its  bonds,  in  sums  of  $1,000  each,  payable  thirty  years 
after  date,  with  annual  interest  at  seven  per  cent  in  gold,  secured  by 
mortgage  upon  its  property ;  and  to  deliver  one  of  such  bonds  together 
with  five  shares  of  its  capital  stock,  of  the  par  value  of  $100,  per  share, 
to  each  and  ever}7  person  who  should  advance  thereon  the  sum  of  $900, 
reserving,  however,  the  privilege  to  the  railroad  company,  of  with- 
drawing the  proposition,  when  it  should  have  received  subscriptions  to 
said  loan,  to  the  amount  of  $3,000,000.  This  proposal  was  favorably 
received,  and  the  loan  was  subscribed  for  by  citizens  and  corporations 
in  various  States  of  the  union,  to  an  amount  greatly  exceeding  the  sum 
required  by  the  railroad  compan}*.  Among  others  the  defendants'  tes- 
tator, one  David  Jones,  subscribed  for,  and  was  awarded  $90,000,  of 
such  contemplated  loan.  It  is  claimed  by  the  appellant,  and  was  found 
as  a  fact  by  the  trial  nonrt,  that  Jones  undertook,  by  the  authority 
and  for  the  benefit  nf  t.hp  p1n.int.ifft  to  nnn  tract  with  this  railroad  uom'- 
llany,  for  a  loan,  under  its  proposal,  in  the  name  of  the  plaintiff,  to  the 
extent  of  one-half  of  t.lift  amount,  whif.h  should  he  allotted  to  him  ;  and" 
by  this  action  the  appellant  seeks  to  recover,  from  Jones'  executors, 
among  other  things,  the  profits  claimed  to  have  been  made  by  him 
upon  its  share  of  the  transaction.  Theright  to  maintain  the  action 
seems  to  depend  upon  the  power  of  thlTbank  to  enter  into  the  pro- 
posed  contract,  for  if  it  had  no  lawful  authority  to  make  such  a  con-^ 
tract  it  could  not  become  liable  to  Jones  upon  its  obligation  to  take  and 
pa}'  for  the  property  contracted  for ;  and  consequent!}'  there  would  be  no 
consideration  for  Jones'  undertaking  to  subscribe  for  t.hp.  benefit  of  t.hf» 
bank.  Not  only  this,  but  the  bank  could  not,  by  suit,  enforce  against 
any  one  an  executory  contract  which  it  was  unauthorized  by  its  charter 
to  make. 

It  becomes  necessary,  therefore,  to  inquire  into  the  nature  of  the 
proposed  contract,  and  the  legal  capacity  of  the  plaintiff  to  transact 
business. 

[After  discussing  these  questions,  the  opinion  proceeds  as  follows  :] 

For  these  reasons,  we  are  of  the  opinion  that  the  plaintiff  was  not 
only  precluded  by  public  polic}*,  but  was  not  authorized  by  the  statute 
under  which  it  was  organized,  to  enter  into  any  engagement  as  a  stock- 
holder in  a  railroad  corporation. 

The  contract  between  the  plaintiff  and  Jones  was  wholly  executory, 
and  nothing  has  occurred  thereunder,  preventing  the  bank  from  setting 
up  its  own  want  of  authorit}7  to  make  such  a  contract,  as  a  defense  to 
any  action  brought  thereon  by  Jones. 


NASSAU   BANK  V.   JONES  ET  AL.  499 

While  executed  contracts,  made  by  corporations  in  excess  of  their 
legal  powers,  have,  in  some  cases,  been  upheld  by  the  courts,  and  par- 
ties have  been  precluded  Jj^n  setting  up,  as  a  defense  to  actions 
brought  by  corporations,  t^^want  of  power  to  enter  into  such  con- 
tracts (Bissell  v.  M.  S.  &  N.  L  R.  R.  Co.,  22  N.  Y.  258  ;  'Whitney 
Arms  Co.  v.  Bariow,  63  id.  62  ;  Woodruff  v.  E.  R.  Co.  93  id.  618), 
this  doctrine  has  never  been  applied  to  a  mere  executory  contract 
which  is  sought  to  be  made  the  foundation  of  an  action,  either  by  or 
against  such  corporations^  It  was  said  by  Judge  SELDEN,  in  Tracy  v. 
Talmage  (14  N.  Y.  179),  "  That  a  contract  by  a  corporation,  which  it 
has  no  legal  capacity  to  make,  is  void  and  cannot  be  enforced,  it  would 
seem  difficult  to  deny."  In  White  v.  Buss  (3  Gushing,  448),  Chief- 
Justice  SHAW  lays  down  the  rule  as  follows  :  "  It  is  well  settled  by  the 
authorities  that  any  promise,  contract  or  undertaking,  the  performance 
of  which  would  tend  to  promote,  advance  or  cany  into  effect  an  object 
or  purpose  which  is  unlawful,  is  in  itself  void  and  will  not  maintain  an 
action. 

Lord  MANSFIELD,  in  Smith  v.  Bromley  (Douglas,  696),  says:  "If 
the  act  is  in  itself  immoral,  or  a  violation  of  the  general  laws  of  public 
policj",  then  the  part}'  paying  shall  not  have  this  action."  In  Tracy  v. 
Talmage,  (supra,  217),  Judge  COMSTOCK  says:  "It  is  admitted  that 
the  contract  of  a  corporation,  which  it  has  no  legal  capacity  to  make, 
cannot  in  its  terms  be  enforced.'' 

There  is  nothing  in  this  case  to  exempt  the  plaintiff  from  the  opera- 
tion of  the  general  principle  determined  in  the  cases  referred  to. 

Jones  owed  no  duty  to  the  plaintiff,  except  that  which  sprang  out  of 
his  engagement  to  purchase  the  stock  and  bonds  in  question  ;  and  that 
having  failed  on  account  of  its  illegality,  left  no 


resting  upon  him.  (Levy  v.  Brush,  45  N.  Y.  589.)  There  is  no  pre- 
text for  the  claim  that  the  contract  was  in  any  respect  an  executed 
one,  for  Jones  never  even  entered  upon  its  performance.  His  subscrip- 
tion for  the  loan  in  his  own  name  was  in  direct  violation  of  the  obliga- 
tion which  it  is  claimed  that  he  had  assumed  ;  and  it  is  that  obligation 
alone  which  is  sought  to  be  enforced  in  this  action.  The  bank,  by  the 
transaction  in  question,  secured  Jones'  promise  to  do  certain  things, 
and  has  relied  solely  upon  that  promise.  It  has  done  nothing  in  per- 
formance of  the  contract,  and,  so  far  as  it  is  concerned,  the  contract 
remains  wholly  executoryT 

Neither  can  Jones  be  treated  as  a  trustee  for  the  benefit  of  the  plain- 
tiff, a  trust  whereb}*  it  is  attempted  to  accomplish  an  illegal  purpose,  is 
quite  as^xbjeciionable  as  adirect  contract  to  effect  the  same  otjject. 

The  law  does  not  raise  mT  implied  obligation  to  effectuate  a  purpose 
which  is  forbidden,  and  which  cannot  be  effected  by  the  parties  through 
the  agenc}-  of  an  express  contract.  (Peny  on  Trusts,  §  214.) 

The  claim  here  is  that  a  trust  should  be  implied  to  enable  the  plain- 
tiff to  reap  the  profits  from  a  transaction  in  which  it  was  not  authorized 
by  law  to  engage.  We  have  found  no  authority  which  supports  such  a 


500  JEMISON  v.  CITIZENS'  SAVINGS  BANK. 

claim  and  are  unable  to  discover  any  ground  upon  which  this  action 
can  be  maintained. 

It  follows  that  the  judgment  should  be^frmed. 

All  concur,  except  RAPALLO  and  EARD^^.,  dissenting. 

Judgment  affirmed. 


JEMISON  v.   CITIZENS'   SAVINGS  BANK. 

1890.     122  New  York,  135.1 

APPEAL  from  General  Term  of  Supreme  Court  in  First  Judicial  De- 
partment, affirming  a  judgment  in  favor  of  defendant. 

Francis  C.  Barlow,  for  appellant. 

Benjamin  II.  Bristow,  and  William  D.  Guthrie,  for  respondent. 

HAIGHT,  J.  The  plaintiffs  were  commission  merchants  and  members 
of  the  Cotton  Exchange  of  the  city  of  New  York.  The  defendant  was 
a  savings  bank  and  trust  corporation  organized  under  the  laws  of  Texas. 

This  action  was  brought  to  recover  commissions,  and  for  money 
claimed  to  have  been  expended  for  the  defendant  on  the  purchase  and 
sale  of  cotton  futures. 


~~TEe  defense  was  that  the  defendant,  as  a  savings  bank  and  trust  cor- 
poration, had  no  power  or  authoritj-  to  deal  in  the  purchase  and  sale  of 
cotton  for  future  delivery,  or  in  contracts  for  the  purpose  of  specula- 
tion ;  that  in  the  transaction  alleged  in  the  complaint  it  acted  as  the 
agent  of  one  Albert  P.  Clopton,  of  Jefferson,  Texas,  and  that  the  fact 
that  he  was  the  principal  for  whom  the  defendant  acted  was  disclosed 
and  well  known  to  the  plaintiffs  prior  to  the  time  of  the  transaction 
referred  to. 

Whilst  the  fact  distinctly  appears  from  the  correspondence  between 
the  parties  that  the  defendant  was  acting  for  "  good  responsible  cus- 
tomers," the  General  Term  was  of  the  opinion  that  this  defense  could 
not  be  sustained  for  the  reason  that  the  defendant  did  not  disclose  the 
name  of  its  principal  at  the  time  of  the  giving  of  the  orders  complained 
of  for  the  purchase  and  sale  of  cotton  futures.  Had  this  defense  been 
sustained,  the  principal  and  not  the  defendant,  his  agent,  would  have 
been  liable.  Without  stopping  to  consider  the  evidence  we  shall  as- 
sume that  this  defense  was  not  established,  and  proceed  to  consider  the 
question  as  to  whether  the  defendant  was  liable  as  principal. 

Transactions  between  the  parties  commenced  in  January,  1879,  by  a 
letter  from  J.  H.  Parsons,  as  cashier  of  the  defendant,  asking  the 
plaintiffs  the  amount  of  margin  and  commission  the.y  required  for  the 
purchase  of  cotton  futures.  The  plaintiffs  answered,  giving  the  amount, 
and  this  was  followed  by  an  order  by  telegraph  from  Parsons,  as  cashier, 

1  Arguments  and  part  of  opinion  omitted.  —  ED. 


JEMISON  v.  CITIZENS'  SAVINGS  BANK.  501 

under  date  of  February  tenth,  to  buy  100  bales,  June  delivery,  and  on 
the  same  da.}*  he  wrote  the  plaintiffs  that  the  order  was  made  for  one  of 
their  customers  who  had  deposited  $250,  as  per  their  favor  of  the  twen- 
ty-seventh ult.  Other  orders  followed,  the  final  result  of  which  was  a 


loss,  to  recover  which  this  action  was  brought.  At  the  time  Parsons, 
was  the  cashier  of  the  defendant,  possessing  the  powers  and  duties  in- 
cident to  the  office  under  the  charter,  constitution  and  by-laws,  havinor 

v  O 

the  general  charge  of  the  business  of  the  bank  and  the  supervision  of  the 
concern,  and  inasmuch  as  the  answer  alleges  that  the  transactions 
referred  to  in  the  complaint  were  had  between  the  plaintiffs  and  the 
defendant  acting  as  agent,  we  shall  treat  him  as  possessing  all  of  the 
authority  to  act  in  the  premises  that  the  directors  of  the  defendant  had 
the  power  to  give.  This  brings  us  to  the  question  whether  or  not  the 
defendant  had  the  power  to  make  the  orders  in  question. 

Whilst  the  buying  and  selling  of  cotton  to  be  delivered  in  the  future, 
may  not  ordinarily  be  immoral  or  prohibited  by  anv  statute,  it  is  not 
included  in  the  powers  given  to  the  defendant  by  its  charter.  The 
transaction  in  question  was  prejudicial  to  its  stockholders  and  tended  to 
endanger  ana  destroy  the  safeguards  provided  for  the  depositors.  The 
stocktioiclers  and  depositors  had  the  right  to  have  their  funds  invested 
in  accordance  with  the  provisions  of  the  charter  and  the  Constitution 
and  laws  of  the  state,  and  in  so  far  as  this  right  was  violated  by  the 
transaction  in  question  it  was  a  misappropriation  of  the  funds  and 
immoral. 

It  is  contended  that  the  defense  of  ultra  vires  is  not  available  in  this 
case,  for  the  reason  that  the  contract  had  been  executed  on  the  part  of 
the  plaintiffs  and  that  the  defendant  is  estopped  from  setting  up  the 
defense.  In  the  case  of  Whitney  Arms  Co.  v.  Barlow  (63  N.  Y.  62) 
the  plaintiff  was  a  corporation  organized  for  the  purpose  of  manufac- 
turing every  variety  of  fire-arms  and  other  implements  of  war,  and  all 
kinds  of  machinery  adapted  to  the  construction  thereof.  It  entered 
into  a  contract  with  the  American  Seal  Lock  Compan}*  to  manufacture 
and  deliver  10.000  locks.  The  locks  having  been  delivered,  it_was  held 
that  the  contract  was  fully  executed  and  that  the  plea  of  ultra  vires 
would  not  prevail  as  a  defense  to  an  action  brought  to  recover  the  con- 
tract price!  We  do  not  question  the  rule  thus  invoked.  It  has  been 
repeatedly  declared  in  other  cases,  as,  for  instance,  in  Parish  v.  Wheeler 
(22  N.  Y.  494),  in  which  it  was  held  that  a  railroad  compan}'  having 
purchased  and  received  a  steamboat  could  be  compelled  to  pay  for  it, 
although  the  power  to  purchase  such  boat  was  not  included  in  its  char- 
ter. But  this  doctrine  has  no  application  to  executory  contracts  which 
are  sought  to  be  made  the  foundation  of  un  antinn,  or  to  Contracts  that 
are  prohibited  as  against  public  policy  or  immoral  (Nassau  IBank  v. 
Jofies^supra;  P.  C.  &  8.  L.  R.  Co.  v.  K.  &  H.  B.  Co.  131  U.  S. 
371-389.) 

In  the  case  at  bar,  the  transaction  as  we  have  seen  was  not  only  im- 


502 


JEMISON  v.  CITIZENS'  SAVINGS  BANK. 


moral  and  in  violation  of  the  rights  of  the  stockholders  and  depositors, 
but  the  defendant  had  received  nothing  by  virtue  of  it.     The  cotton, 
had_J)een  jmrchasgd  by  the  plaintiffs  in  their  own  name,  they  taking 
title  thereto  and  holcUHgTt  upo^EhT^elendantV^ccOunT;    If"was~~pur- 
clfased  under  thel^TeircTl¥e~rJot£dTrT^xc^  of  New  York 

in  which  the  members  doing  business  therein  with  other  members  act 
as  principals  and  are  liable  as  such.  The  most  that  can  be  claimed  is 
that  they  held  the  cotton  or  the  contracts  therefor  subject  to  the  call  or 
order  of  the  defendant.  There  hadbeen_no^deliverv  of  any  cotton  oj 
property  of  ^invkind.or  transfer  ofjiny  title  to  such  propertyto__the 
defendant.  If  the  st^mboat  uacTneverHbeen  defiveredTotEeTailroad 
company  so  as  to  transfer  the  title  thereto,  or  if  the  10,000  locks  had 
never  been  delivered  to  the  American  Seal  Lock  Compan}',  very  differ- 
ent questions  would  have  been  presented  in  the  cases  to  which  we  have 
called  attention.  We^congequentty  are  of  thejopinipn  that  undgj^the 

ot^ultra  vires.  ^  st.ill  nij^hl 

tEe^  defendant. 

The  claim  is  made  on  behalf  of  the  appellants  that  the  defendant,  in 
making  the  orders,  acted  as  an  agent  for  an  undisclosed  principal,  and 
is,  therefore,  liable  as  such.  If  the  defendant  had  no  power  to  engage 
in  the  business  as  principal  we  do  not  understand  what  right  it  had  to 
do  so  as  an  agent,  but  conceding  that  it  was  an  agent  and  that  the  or- 
ders were  made  for  and  on  behalf  of  Clopton  then  this  action  should 
have  been  brought  against  Clopton  instead  of  the  defendant.  But  itjs 
claimed  thp* t1lp  ^qfjgndant  neglected  to  disclose  its  principal  at  the_time, 
<?f  majdngjjie  orders^ndJor_thaTreason  itrnTliable ;~ But  if  itjieglected 
togjs£lose-it&__prmcipal,  so  far~as_tbis  action^witE  the  plaintiffs  is  con- 
cerned ,Jtmust_be_regarded  as  principal  and  Jjable^as  such,  and  if  a 
principal  then  the  question  of  ultra  vires  arises.  The  plaintiffs  cannot 
sustain  their  action  upon  the  two  theories,  for  the3r  lead  in  different 
directions.  They  cannot  proceed  upon  the  theory  that  the  defendant 
was  an  agent,  for  the  purpose  of  avoiding  the  question  of  ultra  vires, 
and  then  upon  the  theory  that  the  defendant  was  a  principal,  for  the 
purpose  of  establishing  a  right  to  recover.  Undoubtedl}'  a  person  may 
in  fact  be  an  agent  and  still  bind  himself  as  a  principal,  but  if  he  is 
proceeded  against  as  a  principal  he  is  entitled  to  all  of  the  rights  and 
privileges  that  the  law  gives  to  a  person  occupying  that  position. 

We  consequently  are  of  the  opinion  that  the  judgment  should  be 
affirmed,  with  costs. 

All  concur. 

Judgment  affirmed. 


MCCUTCHEON  V.  MERZ  CAPSULE  CO.  503 


McCUTCHEON  v.   MERZ   CAPSULE  CO. 

1896.     37  U.  S.  Appeals,  586.1 

IN  the  U.  S.  Court  of  Appeals,  Sixth  Circuit.  Before  TAFT  and 
LURTON,  Circuit  Judges,  and  HAMMOND,  District  Judge. 

Appeal  from  U.  S.  Circuit  Court  for  Eastern  District  of  Michigan. 

Bill  in  equity  by  Merz  Capsule  Co.  (a  Michigan  corporation),  against 
the  U.  S.  Capsule  Co.,  R.  H.  McCutcheon,  its  president,  and  various 
other  parties.  Cross  bill  by  U.  S.  Capsule  Co.  against  Merz  Capsule 
Co.  Evidence  was  taken  and  both  causes  were  heard. 

Two  corporations  (the  Merz  Capsule  Co.  and  the  National  Capsule 
Co.)  and  two  partnerships,  severall}'  engaged  in  the  manufacture  and 
sale  of  hard,  empty  gelatine  capsules,  entered  into  an  agreement, 
dated  Nov.  29,  1893,  tor  the  combination  and  consolidation  of  their 
several  properties  and  business  interests.  The}-  agreed  to  organize  a 
new  corporation  for  carrying  on  said  business  ;  the  stock  to  be  divided 
among  the  above  parties.  They  agreed  to  convej'  their  respective 
plants,  machinery,  &c.  to  the  new  corporation  ;  the  value  of  the  real 
estate  to  be  determined  by  appraisers  if  necessaiy.  In  payment  for 
these  conveyances  each  party  was  to  receive  from  the  new  corporation 
mortgage  bonds  to  the  amount  of  the  appraised  value  of  the  property 
thus  conveyed ;  the  mortgage  to  cover  all  the  propertj*  of  even-  kind 
belonging  to  the  new  corporation.  It  was  also  agreed  that  none  of  the 
above  parties  should  hereafter  engage  in  the  manufacture  or  sale  of 
empty  gelatine  capsules. 

In  pursuance  of  the  above  scheme,  the  parties  organized  a  new  cor- 
poration under  the  general  law  of  New  Jerse}*,  called  the  United  States 
Capsule  Co.  The  capital  stock  of  this  new  company  was  allotted  to 
the  above  parties.  The  property  owned  and  operated  by  each  of  the 
parties  in  making  and  selling  hard,  empt3'  gelatine  capsules  was  valued 
by  appraisers,  as  provided  in  the  agreement,  and  conveyances  and  bills 
of  sale  executed  to  the  United  States  Capsule  Companj'.  The  instru- 
ment  of  sale  executed  by  the  appellee,  the  Merz  Capsule  Company, 
bears  date  December  21,  1893,  and  recites  a  "  consideration  of  815,000, 
and  other  good  and  valuable  consideration."  In  point  of  fact  this  part 
of  the  transaction  i^_vet  incomplete.  No  mortgage  has  been  madeJn: 
the  United  States  Calps7iTe~TJoTnpany",  and  no  bonds  have~been  executed 
for  the  appraised  value  of  this  property  as  contemplated  by  the  agree- 
ment, though  the  United  States  Capsule  Company  did  give  to_tbe_ 
Merz  Capsule~Company~grgertiticate,  reciting  that  the  latter_cojapa«y 
was  to  receive  bondTto  the^mpunt  of  thc_appraised  vaTueof  jts_prgp-" 
JiejLthe  mortgage  should ^e^nade^and  the  bonds^exeguted, 

On  the  same~day  lhat  the  above-mentioned  deed  was  made  and 

1  Statement  abridged.    Part  of  opinion  omitted.  —  ED. 


504  MCCUTCHEOX  V.  MERZ  CAPSULE  CO. 

delivered  the  Merz  Capsule  Company  accepted  a  lease  upon  its  prem- 
ises, machinery,  plant,  etc.,  in  consideration  of  a  nominal  rent,  the 
lease  to  terminate  on  Januarjr  15,  1894,  and  thereafter  continued  in 
the  use  and  occupation  of  its  property,  operating  the  plant  for  the  pur- 
pose of  working  up  stock  on  hand  not  included  in  the  sale.  While 
thus  remaining  in  the  actual  possession  of  its  premises  and  manufac- 
turing plant,  the  Merz  Capsule  Company  determined  to  withdraw  from 
its  engagements  and  contracts  with  the  other  parties  to  the  agreement, 
being  advised,  as  the  original  bill  alleges,  that  the  contract  then  entered 
upon,  and  the  conveyance  in  furtherance  thereof,  were  unlawful  and  in 
excess  of  its  corporate  powers.  The  motive  which  led  to  this  repen- 
tance is  not  of  great  importance,  though  the  evidence  seems  to  make  it 
pretty  clear  that  disappointment  in  obtaining  the  control  of  the  new 
business  led  to  serious  doubt  as  to  the  validit}*  of  the  arrangement. 
This  determination  was  notified  to  the  officers  and  directors  of  the  new 
corporation,  the  stock  certificates  were  tendered  back  and  a  complete 
rescission  was  demanded.  This  tender  was  refused  and  rescission 
denied.  Having  also  given  public  notice  of  the  invalidity  of  the  instru- 
ment under  which  the  United  States  Capsule  Company  asserted  title 
and  right  of  possession  to  its  manufacturing  plant,  the  Merz  Capsule 
Company  resumed  its  ordinary  course  of  business  as  an  independent 
manufacturing  corporation. 

On  January  22,  1894,  while  thus  in  the  full  and  peaceable  possession 
of  its  premises  and  the  use  of  its  machinery  and  appliances,  the  defend- 
anta  "i-g  »hr>wn  tqjiave  made  an  entry  upon  those  premises  through  the 
oncers,  agents  and  servants  of  the  United  States  Capsule  Company, 
junder  circumstances  of  considerable  aggravation,  for  the  purpose  of 
the  machinery  ana  stock  Qf_the_saia  Merz  Capsule  Company, 


and  did—  acliial[y_tcar  down  a  part^of  such  machinery  ^nd  remove  a 
part  thereof  from  the  premises,  and  were  only  prevented  from  com^ 
pietelyjHsmantling  the  factory  by  an  exertion  of  force. 

Thereupon  the  Merz  Capsule  Co.  filed  its  original  bill  against  the 
U.  S.  Capsule  Co.,  McCutcheon,  et  als.  ;  alleging  in  effect  that  the 
aforesaid  agreement  was  illegal  and  in  excess  of  corporate  powers  ; 
that  defendants,  for  the  purpose  of  compelling  plaintiffs  to  carry  out 
the  scheme,  threatened  further  trespasses,  for  which  the  plaintiffs'  rem- 
edy in  damages  would  be  inadequate  ;  and  rjrajjng^  that  the  above 
agreements  and  conveyancesshpnld  be  cancelled,  and  defendants^  en- 
jmnjjd_jjwnjmt%rj^ring  wlflTthe  possessjonof  plaintiffs'  property  and 
prejnises. 

The  U.  S.  Capsule  Co.  answered  and  filed  a  cross  bill,  setting  up  the 
said  agreements  and  conve3"ances  as  legal  instruments,  and  praying  for 
their  specific  performance. 

Upon  full  proof  the  U.  S.  Circuit  Court  made  a  decree,  restraining 
the  U.  S.  Capsule  Co.  from  the  commission  of  further  trespass,  declar- 
ing the  several  agreements  ultra  vires  and  illegal  under  the  law  of 
Michigan,  and  decreeing  that  the  title  to  the  disputed  property  is 


MCCUTCHEON  V.  MERZ  CAPSULE  CO.  505 

quieted  in  the  Merz  Capsule  Co.  The  cross  bill  of  the  U.  S.  Capsule 
Co.  was  dismissed. 

The  U.  S.  Capsule  Co.  et  als.  appealed. 

Henry  M.  Campbell  (Russel  &  Campbell  were  on  the  brief),  for 
appellants. 

Edicin  F.  Conely,  for  appellee. 

LURTON,  J.  [The  Court  field,  "  that  the  agreement  of  Nov.  29, 
1893,  as  to  the  Merz  Capsule  Company,  and  the  subsequent  conveyance 
and  bill  of  sale  to  the  United  States  Capsule  Compan}-  made  in  further- 
ance of  that  agreement,  are  inoperative,  null  and  void,  as  in  excess  of 
its  corporate  powers."  "  Being  ultra  vires,  the  consent  of  its  stock- 
holders cannot  legalize  or  vitalize  the  transaction."  The  opinion  then 
proceeds  as  follows  :  ] 

The  final  objection  urged  by  the  appellants  is  that,  if  the  agreement 
between  the  Merz  Capsule  Compan}'  and  its  associates  is  subject  to  the 
objection  that  it  was  unauthorized  by  its  organic  law  and  contrary  to 
the  public  policy  of  Michigan,  the  objection  cannot  be  urged  by  that 
corporation  as  a  ground  for  affirmative  relief  in  a  court  of  equity. 
Undoubtedly,  if  the  parties  are  in  pari  delicto,  and  the  contract  has 
been  fully  executed  on  the  part  of  the  plaintiff,  and  has  not  been  repiT- 
diated  by  the  defendant,  neither  a  court  of  law  nor  of  equity  will  lend 
Us  active  assistance  to  the  recovery  of  property  or  monej-  paid  on  such 
a  contract,  or  aid  in  bringing  about  its  surrender  or  cancellation.  The 
doctrine  of  the  courts  applicable  was  stated  very  aptly  by  Mr.  Justice 
Gray,  in  St.  Louis,  Vandalia  and  Terre  Haute  Railroad  Company 
v.  Terre  Haute  and  Indianapolis  Railroad  Company,  145  U.  S.  393, 
407,  when  he  said :  "  The  general  rule,  in  equity,  as  at  law,  is  In  pari 
delicto  potior  est  conditio  defendentis  ;  and  therefore  neither  part}-  to 
an  illegal  contract  will  be  aided  by  the  court,  whether  to  enforce  it  or 
to  set  it  aside.  If  the  contract  is  illegal,  affirmative  relief  against  it 
will  not  be  granted,  at  law  or  in  equity,  unless  the  contract  remains 
executory,  orjunless  the  parties  are  considered  not  in  equal  fault,  as 
where  the  law  violated  is  intended  for  the  coercion  of  the  one  party  and 
the  protection  of  the  other,  or  where  there  has  been  fraud  or  oppression 
on  the  part  of  the  defendant.  Thomas  v.  Richmond,  12  Wall.  349, 
355 ;  Spring  Co.  v.  Knowlton,  103  U.  S.  49  ;  Story  Eq.  Jur.  §  298. 
While  an  unlawful  contract,  the  parties  to  which  are  in  pari  delicto, 
remains  executor}*,  its  invalidity  is  a  defense  in  a  court  of  law ;  and  a 
court  of  equity  will  order  its  cancellation  only  as  an  equitable  mode  of 
making  that  defense  effectual,  and  when  necessary  for  that  purpose." 

But  this  rule,  by  which  the  defense  of  particeps  criminis  is  sanc- 
tioned by  courts,  as  stated  by  Lord  Truro  in  Benyon  v.  Nettlefold,  3 
Macn.  &  Gord.  94,  101,  and  approved  by  Lord  Selborne  in  Ay  erst  v. 
Jenkins,  is  rested  "  on  the  grounds  of  public  policy,  namely,  that  those 
who  violate  the  law  must  not  apply  to  the  law  for  protection."  But  in 
the  case  last  cited  Lord  Selborne  notices  a  very  obvious  limitation,  by 
saying :  "  When  the  immediate  and  direct  effect  of  an  estoppel  in 


506  McCUTCHEON   V.   MEKZ   CAPSULE   CO. 

equity  against  relief  to  a  particular  plaintiff  might  be  to  effectuate  an 
unlawful  object,  or  to  defeat  a  legal  prohibition,  or  to  protect  a  fraud, 
such  an  estoppel  may  well  be  regarded  as  against  public  policy." 
L.  R.  16  Eq.  275,  283. 

The  contract  in  the  case  at  bar  between  the  parties  in  pari  delicto  is 
in  a  large  degree  still  executory.     Though  a  deed  and  bill  of  sale  havpL 
been  executed  and  delivered  in  furtherance  of  the  original-  agreement, 
A&  uut"tJeenjurrenderedT  andthe  bonds  to  be  delivered  In 


payment  have  neither_been  delivered  nor  executed.  The  conveyee 
under  the  deed  has  indeed  applied  to  this  court,  through  its  cross  bill, 
for  the  specific  performance  of  the  agreement  by  being  placed  in  pos- 
session under  the  deed,  and  for  an  accounting  with  the  appellee. 
There  is  an  obvious  distinction  between  the  attitude  of  a  complainant 
asking  relief  against  an  unexecuted  agreement,  illegal  for  reasons  not 
appearing  upon  its  face,  and  where  it  is  sought  to  recover  back  money 
or  property  paid  upon  a  contract  fully  executed.  The  cases  stating 
this  distinction  are  referred  to  and  commented  upon  by  Lord  Cotten- 
ham,  in  Simpson  v.  Lord  Sowden,  3  Myl.  &  Cr.  97  et  seq.,  b}'  Lord 
Selborne,  in  Ayerst  v.  Jenkins,  L.  R.  16  Eq.  275,  and  by  Mr.  Justice 
Gra}',  in  St.  Louis,  Vandalia  and  Terre  Saute  Railroad  Company 
v.  Terre  Saute  and  Indianapolis  Railroad  Company,  145  U.  S.  393. 

In  Whaley  v.  Norton,  1  Vernon,  482,  483,  the  Master  of  the  Rolls 
said  "  that  there  would  be  a  difference  in  these  cases  between  a  con- 
tract executed  and  executor}',  and  that  this  court  would  extend  relief 
as  to  things  executor}',  which  if  done,  it  may  be  might  stand."  The 
case  of  Spring  Company  v.  Knowlton,  103  U.  S.  49,  is  highly  instruc- 
tive, and  supports  the  proposition  that  affirmative  relief  may  be  ex- 
tended to  one  of  the  parties  in  pari  delicto,  where  the  contract  is 
unexecuted  and  he  is  desirous  of  rescinding  it,  provided  the  contract 
was  not  one  malum  in  se. 

The  specific  performance  sought  under  the  cross  bill  has  rendered 
necessary  the  expression  of  a  definite  opinion  as  to  the  validity  of  the  con- 
tract thus  set  up  by  the  United  States  Capsule  Company.  In  view  of  this 
opinion,  necessitating  an  affirmance  of  the  decree,  as  far  as  it  dismissed 
the  cross  bill,  ought  we  to  stop  at  this  point  and  decline  to  grant  any 
part  of  the  relief  sought  by  the  appellee  ?  The  Merz  Capsule  Company 
does  not  seek  to  recover  hank  either  property  or  money  paid  or  delivered 
under  Its  agreement  or  deed.  Before  actually  surrendering  possession 
of  its  premises,  machinery  and  appliances,  or_transternn<y  its  patents 
and  ^processes,  it  repudiated  the  whole  scheme  and  tendered  bagk-all 
that  it  naa  ever  received,  and  has  kept  that  tender  good.  But_it  has, 
neither  lost  possession  nor  received  the  bond  paymentjt_was  entitled^ 
to  receive.  Having  given  notice  of  its  purpose  to  go  no  further  in  an 
illegaTscheme,  it  remained  in  the  peaceable  possession  of  its  property 
and  in  the  ordinar}'  conduct  of  its  business.  Without  resorting  to 
legal  proceedings,  the  United  States  Capsule  Company  sought  to  obtain 
possession  of  the  property  of  the  recalcitrant  grantor,  and,  when  pre- 


BOND  V.   TEEKELL   C.   AND   W.   MANTJF.   CO.  507 

vented  by  force  from  accomplishing  its  unlawful  object,  avowed  its  pur- 
pose by  a  repetition  of  the  trespass  to  obtain  a  possession  which  it 
could  not  secure  by  a  resort  to  legal  procedure.  The  effect  of  a  con- 
tinuance of  these  unlawful  methods  to  obtain  possession,  as  shown  by 
the  pleadings  and  proof,  would  be  most  injurious  to  the  business  of  the 
complainant,  and  the  remedy  at  law  inadequate.  Under  all  these  cir- 
cumstances,  to  hold  that  the  com plainantjs  estopped  to  relyjipon  the 
illegality  of  the  agreement  and  conveyance  to  which  it  was  a  party 
would  be  tcTeSeciuaie  an  unexecuted,  uTrta'wt'ui  object,  and  aid  in  the 
defeat  of  a  legal  prohibition.  The  door  of  this  court  should  not  Tie 
closed  against  one  seeking  to  extricate  himself  from  an  unlawful  con- 
nection, provided  relief  is  sought  without  delay  and  before  the  contract 
is  executed,  or  other  persons  have  irrevocably  acted  in  reliance  upon 
its  supposed  legality. 

The  decree  of  the  court  declaring  the  illegality  of  the  agreement  of 
November  29,  1893,  and  of  the  deed  of  December  21,  1893,  and  re- 
straining the  appellants  from  interfering  with  the  title  or  possession  of 
the  appellee  under  color  thereof,  should  be,  and  accordingly  is, 

Affirmed. 


SECTION  VII. 

Suit  by  Corporation  on  an  Ultra  Vires  Contract  which  has 
been  fully  performed  on  its  Part. 

BOND  v.   TERRELL  C.    &  W.    MANUF.    CO. 

1891.     82  Texas,  309.1 

TARLTON,  JUDGE,  Section  IB.  This  suit  was  brought  November  9, 
1889,  by  appellee  against  J.  R.  Bond  and  others,  in  the  District  Court 
of  Kaufman  County,  to  recover  a  balance  due  of  $875  on  a  promissory 
note  executed  January  23,  1888,  b}*  appellants  (J.  R.  Bond  as  princi- 
pal and  the  others  as  sureties)  in  favor  of  appellee,  and  due  twelve 
months  from  date. 

Defendants  answered,  that  the  note  was  executed  in  consideration 
of  money  loaned  by  plaintiff  to  the  principal  Bond ;  that  plaintiff  at 
the  time  it  made  the  loan  was  a  private  corporation  under  the  laws  of 
Texas,  and  was  by  its  charter  authorized  and  empowered  to  manufac- 
ture and  vend  cotton  and  woollen  goods,  and  do  other  acts  incident  and 
necessary  thereto ;  that  under  its  charter  plaintiff  had  no  authority  to_ 
loaii  money  ;  that  for  more  than  seveiTyears  beiore  the  institution  of 

1  Arguments  and  part  of  opinion  omitted.  —  ED. 


508  BOND  V.   TERRELL   C.   AND   W.    MANUF.   CO. 

the  suit  plaintiff  had  not  engaged  in  the  manufacture  and  sale  of  cotton 
and  woollen  goods,  but  had  confined  its  operations  to  loaning  money ; 
that  the  note  was  void. 

[The  case  was  tried  by  the  court  without  a  jury.  Judgment  was 
rendered  in  favor  of  the  Terrell  Co.  for  the  full  amount  sued  for.  The 
defendants,  Bond  et  als.,  appealed.  The  trial  court  made  various 
special  findings  of  fact. 

From  these  facts  that  court  concluded,  as  matter  of  law,  as  follows  : 

1.  The  plaintiff,  under  its  charter,  had  no  power  or  right  to  loan 
defendants  its  funds  or  capital. 

2.  Defendants  having  received  the  money  for  which  the  note  was 
executed  by  them,  are  estopped  from  denying  the  power  of  plaintiff  to 
loan  the  money. 

The  opinion  of  TARLTON,  J.,  after  giving  the  history  of  the  case,  pro- 
ceeds as  follows  :] 

The  last  finding  of  the  court  is  assigned  as  error,  and  presents  the 
onty  question  to  be  considered  by  us,  viz.  :  Are  the  appellants,  who 
have  received  the  money  in  considerationof  which  they  executed  the  " 
"note  sued  OH,  In  a  position  to  question  the  appellee's  right  of  recovery  ? 

In  considering  the  question,  It  will  be  conceded  that  the  court  was 
correct  in  finding  that  the  act  of  the  plaintiff  corporation  in  loaning  the 
money  was  ultra  vires. 

It  seems  now  to  be  settled  by  the  great  weight  of  authorit}*,  that 
where  there  is  a  question  of  a  contract  between  a  corporation  and 
another  part}",  and  the  contract  has  been  performed  by  the  other 
part}-,  and  the  corporation  has  received  the  benefit  of  the  contract, 
it  will  not  be  permitted  to  plead  that  on  entering  into  the  contract  it 
exceeded  its  chartered  powers.  Railway  v.  Gentry,  69  Texas,  632, 
and  the  numerous  authorities  there  cited.  This  rule  operates  con- 
versely.  If  the  other  part}'  has  received  from  a  corporation  the  Benefit 
of  a  contract  fully  performed  in  good  faithby  it,  he  will  not  be  beard- 
to  resist  enforcement  of~the~contract  as  tcThim  by  pleading  JJie— meve 
want  of  power  in  the  corporation  to  enter  into  the  contract.  Arms  Go. 
\:  Barlow,  63  .N.  V.  70;  Uarst  v.  Gale,  83  I11.7~T3T;  Bradley  v. 
Bollard,  55  111.,  417;  Cozart  v.  Railway,  54  Ga.,  379  ;  Tel.  Co.  v. 
Railway,  1  Fed.  Rep.,  745  ;  Dimpfel  v.  Ohio,  etc.,  Co.,  8  Fed.  Rep., 
646  ;  Hitchcock  v.  Galveston,  96  U.  S.,  341  ;  Natchez  v.  Mattory,  54 
Miss.,  497;  Thompson  v.  Lambert,  44  Iowa,  239;  Railway  v.  Alle- 
ghany  Co.,  79  Pa.  St.,  210,  215  ;  Watts'  Appeal,  78  Pa.  St.,  370,  392  ; 
De  Graff  \.  Am.,  etc.,  Co.,  21  N.  Y.,  124;  Gallion  v.  Hays,  29  Ohio 
St.,  330,  340 ;  Railway  v.  McCarthy,  96  U.  S.,  258,  267  ;  Bliss  v. 
Loan  Co..  30  N.  W.  Rep.  465.  This  rule  is  supported  by  the  more 
modern  decisions,  and  seems  to  us  to  be  founded  in  thesuggestlojos-of 
fair  dealing  and  honesty..  It  does  noi  appear,  thouglPthe  loaning  of 
the  money~by  the  corporation  to  the  appellant  Bond  was  ultra  vires, 
that  his  rights  were  in  any  way  infringed  by  the  transaction.  Why, 
then,  should  he  be  heard  to  complain?  If  he  should  return  the  money 


BOND   V.   TERRELL   C.   AND   W.   MANUF.   CO.  509 

which  he  received,  he  would  be  doing  but  an  act  of  justice  in  restor- 
ing it  to  the  stockholders  of  the  corporation  to  whom  it  legitimately 
belongs.  Meanwhile,  if  on  account  of  the  public  welfare  he  feels 
solicitous  that  the  corporation  should  be  prevented  from  engaging  in 
future  loaning  operations  in  excess  of  the  power  conferred  by  the 
statute  under  which  it  is  organized,  the  remedy  against  such  a  usurpa- 
tion can  at  any  time  be  invoked  by  him.  He  could  easily  become  the 
relator  in  a  quo  warranto  proceeding  to  be  instituted  under  Article 
4089  t.  of  the  Revised  Statutes. 

We  have  found  but  one  series  of  modern  decisions  militating  against 
the  views  here  expressed.  We  refer  to  the  decisions  of  the  Supreme 
Court  of  Alabama.  In  that  State  it  is  held  that  a  person  who  has 
made  a  contract  with  a  corporation  which  is  ultra  vires  is  not  estopped 
from  pleading  the  invalidity  of  the  contract,  though  he  has  received 
the  benefit  of  it.  City  Council  v.  Montgomery,  etc.,  Co.,  31  Ala., 
76-88  ;  Chambers  v.  Falkner,  65  Ala.,  448 ;  Bank  v.  Duncan,  54 
Ala.  471.  As  expressed  in  the  case  first  cited,  the  objection  to  the 
application  of  the  doctrine  of  estoppel  in  the  connection  stated  is, 
that  "if  it  be  established  these  corporations,  no  matter  how  limited 
their  powers,  may  make  themselves  omnipotent.  The}1  have  only  to 
induce  persons  to  contract  with  them  beyond  the  scope  of  their  powers, 
and  their  very  usurpations  will  have  the  effect  of  conferring  powers  on 
them  which  the  Legislature  has  withheld."  We  can  not  appreciate 
the  force  of  this  reasoning,  as  applicable  to  the  jurisprudence  of  our 
own  State.  As  above  indicated,  the  remedy  by  quo  warrautn  r-intn  tfi 
prevent  such  abuse  of  the  corporate  powers.  A  usurping  corporation 
acts  always  under  the  menace  of  forfeiture  and  dissolution. 

Appellants,  however,  contend  that  the  doctrine  of  estoppel  should 
not  apply  in  this  case,  because  the  corporation  is  forbidden  to  use  its 
funds  for  the  purpose  of  loans  by  the  statute  under  which  it  is  organ- 
ized ;  that  in  this  case  the  act  of  the  corporation  was  not  merely  with- 
out authority,  but  that  it  was  in  violation  of  law.  The  statute  referred 
to  is  article  589,  Revised  Statutes,  which  reads  as  follows:  "No  cor- 
poration created  under  the  provisions  of  this  title  shall  employ  its 
stock,  means,  assets,  or  other  property,  directl}-  or  indirectly,  for  any 
other  purpose  whatever  than  to  accomplish  the  legitimate  objects  of  its 
creation."  It  is  true  that  a  distinction  is  made  between  the  act  of  a 
corporation  which  is  merely  without  authority  and  one  which  is  illegal. 
In  the  one  case,  it  is  a  question  of  authorit}- ;  in  the  other,  of  legalit}', 
A  corporate  act  becomes  illegal  when  committed  in  violation  of  an 
express  statute  on  a  specific  subject,  or  when  it  is  malum  in  se  or 
malum  prohibitum,  or  when  it  is  against  public  policy.  Beach  on 
Priv.  Corp.,  sec.  438  ;  Taylor  on  Priv.  Corp.,  sees.  293-295.  If,  there- 
fore, the  transaction  here  engaged  in  b}*  appellee  was  not  merely 
beyond  its  powers  but  was  also  illegal,  in  the  sense  stated,  the  conten- 
tion of  appellants  should  prevail. 

It  will  be  noted  that  article  589,  relied  upon  by  appellants,  is  a  gen- 


510  BOND   V.   TERRELL   C.   AND   W.   MANUF.   CO. 

eral  statute.  It  is  merely  declaratory  of  the  common  law,  by  which 
corporations  are  strictly  confined  in  their  powers  to  the  limits  and  fixed 
purposes  for  which  they  were  created.  The  language  of  the  statute  at 
most  emphasizes  the  doctrine  of  the  common  law.  To  such  "  general 
prohibitions,  against  the  doing  by  corporations  of  acts  beyond  the 
scope  of  the  corporate  powers,  courts  appear  to  give  little  effect." 
Taylor  on  Corp.,  sec.  295  ;  Curtis  v.  Leavitt,  15  N.  Y.,  54  ;  Halstead 
v.  Mayor,  3  N.  Y.,  430-433.  And  in  many  cases  (and  these  in  our 
opinion  the  most  authoritative)  where  the  statute  has  a  specific  but  at 
the  same  time  an  implied  application,  the  doctrine  of  estoppel  against 
the  beneficiary  of  an  executed  contract  is  not  changed.  Thus,  in  the 
case  of  National  Bank  v.  Matliews,  98  United  States,  621,  it  was  held 
by  the  Supreme  Court  of  the  United  States  that  a  national  bank  could 
enforce  against  a  mortgagor  a  mortgage  on  real  estate  executed  to  it  as 
collateral  security  for  future  indebtedness  ;  and  this  though  the  trans- 
action was  a  loan  on  real  estate,  and  though  by  a  statutory  provision 
regulating  its  powers  (Rev.  Stats.  U.  S.,  sec.  5137)  it  was  by  clear 
implication  forbidden  to  loan  money  on  real  estate.  The  sovereign 
power  alone  can  complain  of  the  transaction.  "  We  can  not,"  is  the 
language  of  the  court,  "  believe  it  was  meant  that  stockholders  and 
perhaps  depositors  and  their  creditors  should  be  punished  and  the 
borrower  rewarded  by  giving  success  to  this  defence  whenever  the 
offensive  fact  shall  occur.  The  impending  danger  of  judgment  of 
ouster  and  dissolution  was,  we  think,  the  check,  and  no  other,  contem- 
plated by  Congress."  It  appears  to  be  the  settled  rule  and  doctrine  of 
our  highest  tribunal  that  the  benefited  party  to  a  contract  executed  by 
a  corporation  shall  beheld  estopped  from  resisting  thp.  demand  of  a 
corporation  founded  upon  such  contract,  even  though  by  the  statutory 
charter  of  the  corporation  it  is  bv  clear  imp1ip.a.t.irm  forbidden  to  enter 
int.r>  f,hp  p.rmt.rant.  Bank  v.  Whitney,  103  U.  S.,  99 ;  Swope  v.  Lef- 
fingwett,  105  U.  S.,  3 ;  Reynolds  v.  Bank,  112  U.  S.,  405. 

We  therefore  agree  with  the  court  below,  that  the  appellants,  having 
received  the  benefit  of  the  loan  are  in  no  position  to  question  its  valid- 
ity, and  we  conclude  that  the  judgment  should  be  affirmed. 

Affirmed. 


MARBLE   CO.   V.   HARVEY.  511 


MARBLE  CO.   v.   HARVEY. 

1892.     92  Tennessee,  116.1 

APPEAL  from  Chancery  Court  of  Knox  County.     H.  R.  GIBSON,  Ch. 

Green  &  Shields  for  Marble  Company. 
W.  C.  Ehin  for  Harvey. 

LURTON,  J.  The  complainant  is  an  Ohio  corporation,  and  was 
organized  under  the  general  incorporation  law  of  that  State  "for 
the  purpose  of  cutting,  dressing,  manufacturing,  selling,  and  disposing 
of  marble,  stone,  slate,  granite,  and  other  substances,  with  such  other 
incidental  and  necessary  powers  essential  to  carry  on  said  business." 
This  company,  with  its  place  of  business  in  Cincinnati,  Ohio,  has 
acquired  the  entire  issue  of  shares  made  by  a  Tennessee  incorporation, 
engaged  in  a  similar  business  and  under  a  similar  charter,  and  known 
as  the  "  McMillin  Marble  Compan}-."  Its  last  acquisition  of  shares 
was  under  a  contract  with  the  defendant,  who  was  president  of  the 
Tennessee  compan}-,  and  who  owned,  at  the  time  of  the  sale,  twenty- 
five  shares,  being  one  half  of  the  entire  stock  of  the  company.  These 
shares  he  conveyed  to  a  trustee,  selected  by  the  purchasing  corpora- 
tion, for  its  use  and  benefit.  The  consideration  for  the  sale  was  the 
payment  of  six  thousand  dollars,  the  defendant  assuming  and  agreeing 
to  personally  pay  off  and  discharge  one  half  of  all  liability  which  might 
be  fixed  upon  the  McMillin  Marble  Company  as  a  result  of  certain 
suits  against  that  company  then  pending  in  the  Courts  of  this  State. 

The  bill  alleges^  and  the  evjdpnfift  establishes,  that  the  complainant 
company  hasbeen  compelled,in_order  to  protecLlhe  property  ot  the" 
McMillin  MarBTe  Company^  tcTpay  out  about  tbesunTot'  three  tliousand_ 
doTTaririn  settlement  and  satisfaction  of  the  claims  in  suit  at  timeof  its 
con  tracj^  withjeTendTinT 

~~  The  relief~soughtls~a  decree  against  defendant  for  one-half  this  sum, 
being  the  proportion  he  agreed  to  pay  under  his  agreement  of  sale. 

The  defense  is  that  the  contract  of  sale  to  the  complainantjjo m pany 
w^s  unlawful  and  void ;  that  is  to  sa}',  that  the  purchase  of  these 
shares  was  outside  the"  objects  of  its  creation  as  defined  in  its  charter, 
and  is  therefore  such  a  contract  as  is  not  only  voidable,  but  wholly 
void  and  of  no  legal  effect ;  that  it  is  not  a  case  of  excessive  use  of  a 
power  granted,  but  that  no  power  whatever  was  conferred  to  deal  in  or 
hold  the  shares  of  another  corporation ;  that  the  suit  is  one  upon  a 
void  contract  and  in  furtherance  of  it,  and  that  it  should  not  be  enter- 
tained b^  a  Court  of  law  or  equity. 

[After  discussing  the  question  of  ultra  vires  the  opinion  proceeds  as 
follows :] 

The  result  is,  that  this  purchase  of  shares  for  the  express  object  of 
controlling  and  managing  another  corporation  was  ultra  vires,  and, 

1  Part  of  opinion  omitted.  —  ED. 


512  MARBLE   CO.   V,   HARVEY. 

therefore,  unlawful  and  void.  Being  void,  it  was  of  no  legal  effect, 
and  no  rights  result  from  it  enforceable  03-  or  through  the  Courts  of 
the  State,  when  such  aid  is  invoked  in  furtherance  of  the  unlawful 
agreement. 

But  it  has  been  insisted  very  earnestly  by  the  able  and  learned  coun- 
sel for  complainant,  that  where  the  contract  has  been  fully  executed  by 
the  plaintiff,  the  defendant  should  not  be  permitted  to  invoke  such 
defense  to  a  suit  brought  to  compel  performance  ;  that  to  permit  such 
a  defense  would  work  injustice,  and  enable  defendant  to  repudiate  his 
liability  while  holding  on  to  the  price  he  has  received.  There  are 
cases  where,  the  contract  being  fully  executed  on  both  sides,  the  Court, 
in  the  interest  of  justice,  has  refused  to  aid  either  in  obtaining  a  rescis- 
sion. Whitney  Arms  Co.  v.  Barlow,  63  N.  Y.,  62,  is  one  of  this 
class. 

So  there  are  cases  where  the  defense  of  ultra  vires  has  not  been 
entertained  when  the  defect  was  in  the  mode  of  executing  the  contract 
or  in  the  power  of  the  agent. 

So  there  are  many  cases  holding  the  party  relying  upon  the  defense 
of  ultra  vires  to  an  accountability  for  the  benefits  received.  Green's 
Brice's  Ultra  Vires,  717,  and  note  at  end  of  chapter. 

Again,  there  are  cases  where  the  Courts  have  refused  to  entertain 
suits  to  recover  property  from  corporations  which  is  held  in  excess  of 
charter  capacity.  In  such  cases  the  Courts  have  held  that  the  defect 
in  power  could  not  be  set  up  in  a  collateral  way,  and  that  the  State 
only  could  complain  of  such  violation.  To  this  effect  were  our  own 
cases  of  Barrow  v.  Turnpike  Co.,  9  Hum.,  303,  and  Heiskell  v. 
Chickasaw  Lodge,  87  Tenn.  668. 

The  question  here  is  not  like  any  of  these.  The  complainant  sues 
Upon  its  contract,  and,  in  afflrmance_oMt,  seeks  to  have  the  defendant 
perform  an  agreement  which  spr^ng/from7  and  was  collateral  tot  It 
has  received  the  shares  it  purchased,  jind^  holds  on  to  them.  It 


asks  that  the  defendant  be  further  compelled  to  perform  his  contract 
by  contributing,  in  accordance  with  his  agreement,  his~j)roportion_or 
the  liability  paid  off  by  Complainant  in  protection  of  the  property  of 
the  McMillin  Marble  Company.  The  suit  is~~clearly_  in  furtherance 
of  the  original,  unlawful,  and  void  contract.  That  the  contract  has 
been  executed  by  the  plaintiff  does  not  make  it  lawful  or  entitle  it  to 
an  enforcement  of  it. 

This  proposition  was  very  plainly  put  in  Pittsburg,  etc.,  v.  JR.  <&  H. 
Bridge  Co.,  where  it  was  stated,  as  a  result  of  all  the  previous  de- 
cisions of  that  Court  upon  this  subject,  "  that  a  contract  made  by  a 
corporation,  which  is  unlawful  and  void  because  beyond  the  scope  of 
its  corporate  powers,  does  not,  by  being  carried  into  effect,  become 

[lawful  and  valid  ;  but  the  proper  remed}'  of  the  party  aggrieved  is  by 
disaffirming  the  contract,   and    suing    to  recover,  as  on    a  quantum 

\meruit,  the  value  of  what  the  defendant  has  actually  received."     131 

I'U.  S.,  389. 


MAEBLE   CO.   V.   HARVEY.  513 

The  case  of  Central  Transportation  Co.  v.  Pullman  Car  Co.  [139 
U.  S.  24]  is  an  exceedingly  interesting  case,  as  it  involved  a  considera- 
tion of  the  circumstances  under  which  a  defendant  may  interpose 
the  defense  of  ultra  vires,  notwithstanding  full  performance  by  the 
plaintiff. 

In  that  case,  the  Central  Transportation  Company  had  leased  and 
transferred  all  of  its  property  of  every  kind  to  the  defendant  company, 
which  was  engaged  in  a  similar  and  competitive  business.  The  lessee 
company  undertook  to  pay  all  of  the  debts  of  the  lessor  company,  and 
to  pay  to  it  annually  the  sum  of  $264,000  for  a  term  of  ninety-nine  3'ears. 
Possession  was  taken,  and  the  installments  paid  for  a  number  of  years. 
The  suit  was  for  a  part  of  the  installment  for  the  last  year  before  suit. 
The  defense  of  ultra  vires  was  interposed  and  sustained,  the  Court 
holding  that  the  sale  was  unauthorized  and  in  excess  of  the  power  of 
the  selling  company.  It  was  urged  for  the  plaintiff,  as  in  this  case, 
that,  even  if  the  contract  was  void,  because  ultra  vires  and  against 
public  policy,  }*et  that,  having  been  fully  executed  on  the  part  of  the 
plaintiff,  and  the  benefits  of  it  received  b}-  the  defendant  for  the  period 
covered  by  the  declaration,  the  defendant  was  estopped  to  set  up  the 
invalidit}-  of  the  contract  as  a  defense  to  an  action  to  recover  the  com- 
pensation agreed  on  for  that  period. 

After  reviewing  its  own  decisions  upon  this  branch  of  the  case,  that 
Court  said  : 

"  The  view  which  this  Court  has  taken  of  the  question  presented  by 
this  branch  of  the  case,  and  the  only  view  which  appears  to  us  con- 
sistent with  legal  principles,  is  as  follows  :  A  contract  of  a  corporation 
which  is  ultra  vires  in  the  proper  sense  —  that  is  to  say,  outside  the 
object  of  its  creation  as  defined  in  the  law  of  its  organization,  and 
therefore  beyond  the  powers  conferred  upon  it  by  the  Legislature  —  is 
not  voidable  only,  but  wholly  void,  and  of  no  legal  effect.  Tlip  nbjpp- 
tion  to  the  contract  is  not  merely  that  the  Corporation  ought  not  to 
have  made  it,  but  that  it  could  notmake  it._  The  contract  cannot  be 
ratified  Dy  eiUier1  party,  because  it  could  not  have  been  authorized  by 
either.  No  performance  on  either  side  can  give  the  unlawful  contract 
any  validity,  or  be  the  foundation  of  any  right  of  action  unon  it. 
When  a  corporation  is  acting  within  the  general  scope  of  the  powers 
conferred  upon  it  by  the  Legislature,  the  corporation,  as  well  as  per- 
sons contracting  with  it,  may  be  estopped  to  deny  that  it  has  com- 
plied with  the  legal  formalities  which  are  prerequisites  to  its  existence 
or  to  its  action,  because  such  requisites  might  in  fact  have  been  com- 
plied with.  But  where  the  contract  is  bej'ond  the  powers  conferred 
upon  it  by  existing  law,  neither  the  corporation  nor  the  other  party 
to  the  contract  can  be  estopped,  by  assenting  to  it  or  by  acting  upon  it, 
to  show  that  it  was  prohibited  by  law. 

"  A  contract  ultra  vires  being  unlawful  and  void,  not  because  it  is 
in  itself  immoral,  but  because  the  corporation,  by  the  law  of  its  crea- 
tion, is  incapable  of  making  it,  the  Courts,  while  refusing  to  maintain. 

33 


514  BRUNSWICK,   ETC.   CO.   V.   UNITED,   ETC.   CO. 

any  action  upon  the  unlawful  contract,  have  always  striven  to  do  jus- 
tice between  the  parties,  so  far  as  it  could  be  done  consistently  with 
adherence  to  law,  by  pp.rmittinp;  property  or  money,  parted  with  on  the 
faith  nft.hft  unlawful  nontrn,p.t,T  t.n  ha  recovered  back,  or  compensation 
to  bemadjLjjQ£Jt.  In  such  case,  however,  the  action  is  not  maintained" 

jiprm^thp    ^lawful    rnntract.    nor    according   tfO    i*g    t.prmsj    frntTon    an 

implied  contract  of  the  defendant  to  return,  or,  failing  to^do  that,  to 
make  compensation  for  property  or  money  which  it  has  no  right  to 
retain^  To  maintain  such  an  action  is  not  to  affirm,  but  to  disaffirm, 
the  unlawful  contract."  139  U.  S.,  60. 

This  seems  to  us  to  fully  and  clearly  state  the  rule.  The  passage 
cited  by  counsel  from  Railway  Co.  v.  McCarthy,  96  U.  S.,  267,  "  that 
the  doctrine  of  ultra  vires,  when  invoked  for  or  against  a  corporation, 
should  not  be  allowed  to  prevail  when  it  would  defeat  the  ends  of 
justice,  or  work  a  legal  wrong,"  is  misleading ;  and,  if  literally  con- 
strued, would  result  in  an  enormous  practical  extension  of  the  powers 
of  corporations. 

We  do  not  understand  that  a  result  required  by  adherence  to  the  law 
would  be  either  unjust  or  a  legal  wrong.  The  learned  Judge  doubtless 
intended  it  to  be  understood  that  the  defense  would  be  a  legal  wrong 
only  when  the  law  did  not  require  its  consideration  by  the  Court. 

This  passage  and  one  of  similar  character  in  San  Antonio  v.  Me- 
haffy,  96  U.  S.,  312,  was  uncalled  for  in  the  case  in  which  it  was  used, 
and  in  Central  Transportation  Co.  v.  Pullman  Car  Co.,  supra,  was 
characterized  as  "  a  mere  passing  remark." 

To  sustain  this  suit,  as  now  presented,  would  be  in  affirmance  and 
furtherance  of  an  unlawful  and  void  contract.  It  is  in  no  sense  a  suit 
in  disaffirmance. 

Whether  complainant  could  tender  back  the  shares  received,  and 
I  maintain  a  suit  to  recover  the  money  paid  for  the  shares  upon  an 
I  implied  agreement  to  return  money  which  the  defendant  had  no  right 
\  to  retain,  is  a  question  not  presented  upon  this  record. 

The  decree  dismissing  the  bill  must,  upon  the  grounds  herein  stated, 
be,  and  accordingly  is,  affirmed. 


WALTON,  J.  IN  BRUNSWICK,  &c.  CO.  v.  UNITED,   &c.  CO. 

1893.     85  Maine,  p.  541. 

BUT  it  is  claimed  that,  inasmuch  as  the  defendant  company  took  and 
held  possession  of  the  plaintiff  company's  works  by  virtue  of  the  lease, 
ultra  vires  is  no  defense  to  an  action  to  recover  the  agreed  rent.  We 
do  not  doubt  that  the  plaintiff  company  is  entitled  to  recover  a  reason- 
able rent  for  the  time  the  defendant  company  actually  occupied  the 


WASHBUEN  MILL  CO.   V.  BAETLETT.  515 

works ;  but  do  not  think  the  amount  can  be  measured  by  the  ultra 
vires  agreement.  We  think  that  in  such  cases  the  recovery  must  be 
had  upon  an  implied  agreement  to  pay  a  reasonable  rent :  and  that 
while  the  ultra  vires  agreement  may  be  used  as  evidence,  in  the  nature 
of  an  admission,  of  what  is  a  reasonable  rent,  it  cannot  be  allowed  to 
govern  or  control  the  amount.  It  seems  to  us  that  it  would  be  absurd 
to  hold  that  the  ultra  vires  lease  is  void  and  at  the  same  time  hold  tbat^ 

if.  gmrorno  tho  righta  of  t.lin  pnrtinn  with    respect  to  thg_amOUnt   Of  rent 

la  be  recovered.  A  void  instrument  governs  nothing.  We  think  the 
correct  rule  is  the  one  stated  by  Mr.  Justice  Gray,  in  a  recent  case  in 
the  United  States  Supreme  Court.  He  said  that  a  contract  made  by  a 
corporation  which  is  unlawful  and  void,  because  beyond  the  scope  of 
its  corporate  powers,  does  not  by  being  carried  into  execution  become 
lawful  and  valid  ;  and  that  the  proper  remedy  of  the  aggrieved  party  is 
to  disaffirm  the  contract^  and  sue  |»  rpnnver  as  on  a  quantum  meruit 
thlTvalue  of  what  the  Defendant  has  actually  received  the  benefit  of. 
Pittsburgh,  etc.  v.  Keokuk,  etc.,  131  U.  S.  371.  We  think  this  the 
correct  rule.  2  Beach  on  Corp.  s.  423,  and  cases  there  cited. 


WASHBURN  MILL  CO.   v.   BAETLETT. 

1893.     3  North  Dakota,  138.1 

J.  E.  Bishop,  (Akers  &  Lancaster  of  Counsel),  for  appellant. 

Thorp  and  Ellsworth,  (Ball  &  Watson  of  Counsel) ,  for  respondent. 

BARTHOLOMEW,  J.  The  appellant  herein,  the  Washburn  Mill  Com- 
pany, is  a  corporation  chartered  by  the  State  of  Minnesota,  and  organ- 
ized and  existing  under  and  by  virtue  of  her  laws.  It  brought  this 
action  in  the  District  Court  for  Sargent  Count}7,  in  this  state,  to  fore- 
close a  real  estate  mortgage  executed  by  S.  J.  Bartlett  and  F.  G. 
Bartlett,  the  respondents  herein,  to  secure  a  promissory  note  given  by 
respondents  to  appellant.  The  answer  admits  the  execution  of  the 
note  and  mortgage,  and  as  a  sole  defense  thereto  alleges,  in  substance. 
EEaTat^the  time  the  same  wer^  gira",  appellant  wa,s__a  foreign  corpora- 
tion,  and  was  engaged  in  and  carrying  on  the  regular  business  of  deal- 
"InflTin  lumber  at  Forman.  and  other  points  _Jn_the_J>rritftry  ^f  Pak^tn, 
(now^Stat^ofNorth  Dakota ;)  and  that  said  note  and  mortgage  were 
given  and  received  at  said  Forman,  and  in  the  regular  course  of  appel- 
lant's business ;  and  then  proceeds  to  set  forth  certain  facts  to  show 
that  at  the  time  of  said  transactions  appellant  had  not  complied  witn~ 
the  statutory  provisions  then  in  force  in  the  Territory  of  Dakota,  and 
qow~in  force  in  this  state,  relative  to  the  transaction  of  business  by 

1  Statement  and  arguments  omitted.  —  ED. 


516  WASHBUEN  MILL   CO.   V.   BAKTLETT. 

foreign  corporations.  There  was  a  demurrer  to  the  answer,  which  the 
trial  court  overruled,  and  this  ruling  is  the  onl}'  question  involved  in 
this  appeal.  The  statutes  relied  upon  constitute  §§  3190,  3192  of  our 
Comp.  Laws,  and  read  as  follows  :  "  No  corporation  created  or  organ- 
ized under  the  laws  of  any  other  state  or  territory  shall  transact  any 
business  within  this  territoiy,  or  acquire,  hold,  and  dispose  property, 
real,  personal,  or  mixed,  within  this  territory,  untiL-SJicji  corporation 
shall  Jiavo  filed  on  the  office  of  the  secretary  of  the_territorv  a  duly 
Rnt.hpnf-.inftf.pf1  n.npy  of  its  charter  or  articles  of  incorporation,  and  shall 
htfvei complied  with  the  provisions  of  this  article:  provided,  that  the 
provisions  of  this  act  shall  not  apply  to  corporations  or  associations 
created  for  religious  or  charitable  purposes  only."  Section  3192: 
"  Such  corporation^!  all  appoint  an  agent,  who  shall  reside  at  some 
accessible  point  in  this  territory,  in  the  county  where  the  principal 
business  of  said  corporation  shall  be  carried  on,  duly  authorized  to 
accept  service  of  process,  and  upon  whom  service  of  process  may  be 
made  in  any  action  in  which  said  corporation  may  be  a  party ;  and 
service  upon  such  agent  shall  be  taken  and  held  as  due  service  upon 
such  corporation.  A  duly  authenticated  copy  of  the  appointment  or 
commission  of  such  agent  shall  be  filpri  and  rp^nrrlftd  in  the  offices  of_ 
the_gecretary  of  the-  tfrr\t.nry  and  register  r>f  dppfls  of  thf^county  where 
said  agent  resides,  and  a  certified  copy  thereof  by  the  secretary  or  regis- 
ter of  deedsshall  be  conclusive  evidence  of  the  appointment  and  author- 
ity of  such  agent."  Three  errors  are  assigned  and  argued  :  first,  the 
answer  does  not  state  facts  sufficient  to  show  noncompliance  with  said 
statutes :  Second,  said  statutes  do  not  make  contracts  made  in  viola- 
tion of  the  provisions  thereof  void  or  unenforceable  as  between  the  par- 
ties thereto,  or  in  an}'  way  affect  their  rights  or  remedies.  Third,  said 
statutes,  as  applied  to  the  case  at  bar,  are  unconstitutional,  in  that 
they  interfere  with  intestate  commerce. 

As  to  the  first  point,  without  setting  forth  the  allegations  in  detail, 
we  have  to  say  that  a  careful  consideration  of  them  leaves  no  doubt  in 
our  minds  that  the  allegations  fairly  show  noncompliance  with  the 
statute,  and  the  trial  court  committed  no  error  in  so  holding. 

The  second  point  is  difficult,  and  involved  in  much  confusion.  While 
those  provisions  have  been  upon  our  statute  books  for  years,  appearing 
as  §§  567,  569  in  the  Civil  Code  of  1877,  yet  they  are  now,  for  the  first 
time,  to  be  passed  upon  b}-  the  court  of  last  resort  in  this  jurisdiction. 
On  three  different  occasions  (Machine  Co.  v.  Moore,  8  N.  W.  Rep. 
131,  2  Dak.  280;  Manufacturing  Co.  v.  Foster,  (Dak.)  30  N.  W. 
Rep.  166 ;  and  Lumber  Co.  v.  Keefe,  41  N.  W.Rep.  743,  6  Dak.  160) 
an  effort  was  made  to  raise  the  point  before  the  Supreme  Court  of 
Dakota  Territor}',  but  no  ruling  was  ever  made.  In  declaring  the 
effect  of  statutes  prohibitory  in  form,  courts  have  but  one  object  in 
view,  —  the  real  purpose  of  the  statute  ;  the  real  intention  of  the  legis- 
lature in  its  enactment.  It  may  be  stated  as  a  rule  at  common  law 
that  if  a  statute  forbids  an  act  to  be  done  —  provides  a  penalty  for  doing 


WASHBUEN   MILL   CO.   V.   BAETLETT.  517 

it  —  any  contract  to  do  the  forbidden  act  is  void,  whether  the  statute 
expressly  so  declares  or  not.  Machine  Co.  v.  CaldweH,  54  Ind.  276. 
And  when  the  purpose  of  the  enactment  is  the  absolute  prohibition  of 

n_r>grtnin  ftf.t,  thp.n  t.hft  performance  thereof  is  invalid,  whether  t.hp  pro. 

hibited  act  be  malum  in  se  or  simply  malum  prohibitum.  Holt  v. 
Green,  73  Pa.  St.  198  ;  Pratt  v.  Short,  79  N.  Y.  437.  But  in  deter- 
mining the  purpose  of  the  enactment,  courts  consider  the  nature  of  the 
forbidden  act,  for  the  very  obvious  reason  that  when  such  act  is  immoral 
or  criminal  in  its  nature,  or  dangerous  to  life,  health  or  property,  the 
presumption  must  prevail  that  legislative  wisdom  intended  to  stamp  it 
out  ;  while  if  the  act  be  innocent  in  itself  and  in  its  consequencfi&r-BO- 
such  presump_tion^necessarily  arises.  Among  the  former  may  be  men- 
tioned gaming  contracts,  contracts  for  the  sale  of  intoxicating  liquors, 
where  such  sales  are  made  criminal,  contracts  for  the  sale  of  diseased 
food,  champertous  contracts,  etc.  A  large  number  of  the  cases  arose 
under  statutes  of  this  kind,  and  are  not  authority  for  the  case  at  bar. 
To  properly  construe  statutes  of  t.hp  nature  of  t.hp  onp.  hp.rp  invnlrpd,  if. 
is  n°"agsflryt^Jirsti  ronsidftr  thp  pnwrrs  nnd  privilrgoR  of  foreign  cor 
poraiio"ns~lnthe  a^conno  r\f  oil  cfntnf^ry  regulations.  While  it  is 
undoubted!}*  true,  as  stated  by  Chief  Justice  Taney  in  JBanJc  v.  Earle, 
13  Pet.  588,  that  "a  corporation  can  have  no  legal  existence  out  of 
the  boundaries  of  the  sovereignt}'  by  which  it  is  created,"  and  that 
"every  power,  however,  of  the  description  of  which  we  are  speaking, 
which  a  corporation  exercises  in  another  state,  depends  for  its  validity 
upon  the  laws  of  the  sovereignty  in  which  it  is  exercised,  and  a_  cor- 
poration can  make  no  valid_con  tract  without  their  sanction,  express  or 
implied  sanction  is  always  pres.pm^ 


the  contrary  appears..  In  the  same  case  it  is  said  :  "  We  think  it  well 
Settled  that  by  the  law  of  comity  among  nations  a  corporation  created 
by  one  sovereignty  is  permitted  to  make  contracts  in  another,  and  to 
sue  in  its  courts,  and  that  the  same  law  of  comity  prevails  among  the 
several  sovereignties  of  this  Union."  In  Elston  v.  Piygott,  94  Ind. 
17,  it  is  said:  "  This  principle  of  the  comity  of  nations  is  a  part  of  the 
common  law,  and  is  by  long  settled  rn1p.s,jis_wpjl_as  by  positive  st.fl.tnte, 
ingrafted  on  our  law."  And  to  same  effect  are  Christian  Union  v. 
Young,  101  U.  S.  352  ;  Thompson  v.  Waters,  25  Mich.  214  ;  Lumber 
Co.  v.Thomas,  33  W.  Va.  566,  11  S.  E.  Rep.  37;  Ang.  &  A.  Corp. 
§§  372,  376.  Of  course  this  comity  only  extends  to  the  exercise  of 
such  powers  as  are  expressly  granted  in  the  charter  fonfcn-pd  jj^r 
tfiePcreating  sovereignty^  It  is  true,  also,  that  one  sovereignt}7  has 
the  power  to  exclude  from  its  territory  an}'  corporation  created  by 
another  sovereignty  ;  but  this  must  be  done  by  express  statute,  or  by 
the  settled  policy  of  the  state,  as  evinced  by  the  decisions  of  its  courts 
of  last  resort.  And  this  includes  the  lesser  right  to  prescribe  terms 
with  which  such  foreign  corporation  must  comply.  We  have  no  statute 
excluding  foreign  corporations,  except  as  heretofore  quoted,  nor  has  it 
ever  been  the  policy  of  this  state  to  exclude  foreign  corporate  capital 


518  WASHBURN   MILL   CO.   V.   BARTLETT. 

and  business  enterprise.  Appellant,  unless  forbidden  by  the  statute 
quoted,  had  the  power  to  transact  business  and  enter  into  contracts  ii£. 
the  TerPitorj'  ot  Dakota^  The  nature  of  its  contracts  contravened  no 
policy  of  that  territory.  The  contract  was  innocent  in  itself  and  in  its 
consequences.  Under  these  facts,  was  it  the  legislative  purpose,  by 
the  enactment  of  §§  3190,  3192,  Cornp.  Laws,  to  declare  contracts  of^ 
this  character,  entered  into  before  the  foreign  corporation  had  complied 


with  thlTp revisions  of  said  sections,  unenforceable 


us  and  other  subjects  are  round  in  all  the  states  of  this 


stalutes  upon 

Union,  and  in  their  construction  so  much  is  left  to  judicial  determina- 
tion that  uniformity  in  the  decisions  would  hardly  be  expected.  The 
statutes,  too,  present  great  variety.  Some,  like  ours,  are  prohibitory 
in  form,  with  no  penalty  attached,  and  silent  as  to  the  consequences  of 
noncompliance.  Others,  while  not  prohibitory  in  form,  attach  a  pen- 
alty for  doing  or  failing  to  do  certain  specified  things.  Others  have 
both  the  prohibitory  form  and  the  penalty.  Some  declare  contracts 
made  without  compliance  with  their  provisions  void  and  unenforceable 
or  unlawful.  Others  specify  various  consequences  that  shall  follow 
noncompliance.  One  class  of  cases,  where  the  statutes  are  prohibitoiy, 
with  penalty  attached,  holds  that  contracts  made  without  compliance 
with  the  terms  of  the  statute  are  nevertheless  valid  and  enforceable, 
on  the  ground  that  by  annexing  a  penalt}"  the  legislature  manifested  its 
purpose  that  the  penalty  should  be  exclusive  of  all  other  consequences 
of  noncompliance.  Of  this  class  are  dumber  Co.  v.  Thomas,  33  W. 
Va.  5G6,  11  S.  E.  Rep.  37;  Insurance  Co.  v.  Walsh,  18  Mo.  229; 
Insurance  Co.  v.  McMillen,  24  Ohio  St.  67;  Harris  v.  Runnels,  12 
How.  79.  Another  class  of  cases,  under  similar  statutes,  holds  that 
the  annexation  of  a  penalty  renders  all  acts  which  subject  the  party 
to  the  penalty  unlawful,  and  hence  unenforceable,  on  the  universally 
accepted  proposition  that  no  cause  of  action  can  be  based  upon  an 
unlawful  transaction.  See  Buxton  v.  Hamblen,  32  Me.  448  ;  Miller 
v.  Post,  1  Allen,  434  ;  Wheeler  v.  Russell,  17  Mass.  257 ;  Johnson  v. 
Hulings,  103  Pa.  St.  498  ;  Holt  v.  Green,  73  Pa.  St.  198  ;  Dudley  v. 
Collier,  (Ala.)  6  S.  Rep.  304;  Insurance  Co.  v.  Harvey,  11  Wis. 
412 ;  Elkins  v.  ParJchurst,  17  Vt.  105.  But  there  is  still  another  class 
of  cases,  where  the  statute  annexes  a  penalty,  that  holds  that  contracts 
made  without  compliance  with  the  statute  are  nevertheless  valid,  on 
the  ground  that  the  purpose  of  the  statute  was  not  to  prohibit  business, 
but  to  accomplish  some  collateral  object.  In  this  class  we  cite  Lar- 
ned  v.  Andrews,  106  Mass.  435  ;  Aiken  v.  Blaisdell,  41  Vt.  655  ; 
DeMers  v.  Daniels,  39  Minn.  158,  39  N.  W.  Rep.  98  ;  Strong  v. 
Darling,  9  Ohio,  201  ;  Pangborn  v.  Westlake,  36  Iowa,  546  ;  Rahter  v. 
Hank,  92  Pa.  St.  393.  It  has  been  held  under  statutes,  prohibitory  in 
form^Jjut,  without  penaltyTand  silent  as  to  consequences,  such  as  ours 
heretofore  quoted,  that  all  contracts  entered  into  without  compliance 
with  the  terms  of  the  statute  were  absolutely  void.  These  cases  are 
based  largely~upon  me  tnougnt  that,  inasmuch  as  there  is  no  penalty 


WASHBURN   MILL   CO.   V.   BARTLETT.  519 

or  forfeiture  provided  in  the  statute  for  a  disregard  of  its  terms,  there 
remains  no  method  of  its  enforcement,  other  than  to  declare  all  con^* 
tractsmade  in  disregard  oFth^Tin&tutory  ^provisions  unenforceable? 
BanJcT\.  Page,  6  Of.  45T;  Hau/wny  v.  Leury,  liJ  Or.  40, T  Pac.  Hep". 
329  ;  in  re  Comstock,  3  Saw}-.  218 ;  Huffman  v.  Banks,  41  Ind.  1 ; 
Insurance  Co.  v.  Harrah,  47  Ind.  236  ;  Insurance  Co.  v.  Thomas,  46 
Ind.  44 ;  Assurance  Co.  v.  Rosenthal,  55  111.  85. 

Other  cases  arising,  like  those  last  noticed,  under  statutes  prohibi- 
tory in  form,  but  without  penalty  or  expressed  consequences,  have  held 
that  contracts  entered  into  without  compliance  with  the  terms  of  the 
statute  were  valid,  enforceable  contracts  as  between  the  parties,  and 
that  one  who  had  received  and  retained  the  benefits  of  such  a  contract 
could  not  raise  the  question  of  noncompliance.  Bank  v.  Matthews,  98 
U.  S.  621,  arose  under  that  provision  in  the  national  banking  law  per- 
mitting national  banks  to  purchase,  hold,  and  convey  real  estate  forcer- 
tain  specified  purposes,  and  no  other.  The  bank  had  received  real  estate 
security  contrary  to  the  terms  of  the  act,  and  it  was  sought  to  declare 
such  security  void  in  the  hands  of  the  bank.  The  court  said  the  prohibi- 
tion was  clearly  implied,  and  as  effectual  as  if  it  were  expressed  ;  but, 
oh  full  consideration  and  a  review  of  the  authorities,  it  was  held  that  the 
purpose  of  the  statute  was  not  to  render  such  contracts  void  and  unen- 
forceable. The  court  used  this  language :  "  The  intent,  not  the  let- 
ter, of  the  statute  constitutes  the  law.  A  court  of  equity  is  alwaj's 
reluctant  in  the  last  degree  to  make  a  decree  that  will  effect  a  forfeiture. 
The  bank  parted  with  its  mone}'  in  good  faith.  Its  garments  are  un- 
spotted. Under  these  circumstances,  the  defense  of  ultra  vires,  if  it 
can  be  made,  does  not  address  itself  favorably  to  the  mind  of  the  chan- 
cellor." And  as  a  conclusion  the  court  said  :  "  The  impending  danger 
of  a  judgment  of  ouster  and  dissolution  was,  we  think,  the  check,  and 
none  other  contemplated  03-  congress.  That  has  been  always  the  pun- 
ishment prescribed  for  wanton  violation  of  a  charter,  and  it  may  be 
made  to  follow  whenever  the  proper  public  authority  shall  see  fit  to 
invoke  its  application.  A  private  person  cannot,  directly  or  indirectly, 
usurp  this  function  of  the  government."  The  court  also  quoted  with 
approval  the  following  language  from  Sedg.  St.  Const.  73  :"  Where 
it  is  a  simple  question  of  authority  to  contract,  arising  either  on  a  ques- 
tion of  regularity  of  organization  or  power  conferred  by  charter,  a 
party  who  has  had  the  benefit  of  the  agreement  cannot  be  permitted, 
in  an  action  founded  upon  it,  to  question  its  validity."  Whitney  v. 
Wyman,  101  U.  S.  392,  is  equally  instructive.  It  arose  under  a 
Michigan  statute,  which  prohibited  corporations  from  transacting  busi- 
ness until  their  articles  of  incorporation  were  filed  in  the  proper  office, 
but  attached  no  penalty.  Certain  parties  purporting  to  act  for  a  cer- 
tain corporation,  but  before  articles  of  incorporation  were  filed,  ordered 
certain  machinery  of  plaintiff,  which  was  forwarded  and  charged  to  the 
parties  ordering,  and  not  to  the  corporation.  The  parties  refused  to 
pay,  and  plaintiff  brought  action  against  them,  claiming  that  the  cor- 


520  WASHBUKN   MILL   CO.   V.   BA.KTLETT. 

poration  for  which  they  purported  to  act  could  not  transact  business  by 
reason  of  the  statutory  restriction.     A  unanimous  court,  speaking  In- 
justice Swayne,  said:  "The  restriction  imposed  by  the  statute  is  a 
simple  inhibition.     It  did  not  declare  what  was  done  should  be  void, 
nor  was  any  penalty  prescribed.     No  one  but  the  state  could  object. 
The  contract  is  valid  as  to  plaintiff,  and  he  has  no  right  to  raise  the 
question  of  its  invalidity  ;  "  citing  the  case  of  Sank  v.  Matthews,  and 
showing  that  the  court  considered  the  principle  involved  to  be  the  same. 
In  Grant  v.  Coal  Co.,  80  Pa.  St.  218,  it  is  said  :  "  Having  dealt  with 
the  defendant  in  error  as  a  de  facto  corporation,  there  is  little  merit  in 
the  defense  now  taken,  that  they  were  not  duly  incorporated,  and  had 
no  right  to  sue  for  coal  which  it  is  admitted  they  delivered.     Nor  is 
there  any  question  raised  upon  the  record  as  to  the  right  of  this  com- 
pany as  a  foreign  corporation  to  hold  real  estate  or  even  raining  leases 
in  this  state.     If  the  commonwealth  has  any  interest  in  such  inquiry,  it 
can  be  raised  by  her  proper  officer.    It  is  a  matter  with  which  the  plain- 
tiff in  error  has  no  concern."     Since  the  decision  of  this  case  in  the  trial 
court,  the  Supreme  Court  of  South  Dakota,  in  an  elaborate  and  instruc- 
tive opinion  by  Bennett,  J.,  has  passed  upon  the  identical  statute  here 
in  question,  which  South  Dakota,  like  North  Dakota,  received  at  the 
hands  of  the  late  Territory  of  Dakota.     The  conclusion  reached  by 
that  court,    after  a  full   review   of  the   authorities,   is   thus   stated : 
"  Aided  by  the  light  of  these  able  decisions,  endeavored  to  be  reviewed 
upon  both  sides  of  the  question  raised  in  the  case  at  bar,  we  have  come 
to  the  conclusion  that  the  constitutional  provision  and  legislative  en- 
actment in  our  state,  as  quoted  above,  was  not  designed  or  intended  as 
a  prohibition  upon  foreign  corporations  to  contract  in  this  state,  to  the 
extent  to  declare  such  contracts  void,  but  were  merely  intended  to  fur- 
nish the  means  by  which  our  citizens  could  procure  personal  judgments 
against  foreign  corporations  who  were  their  debtors.     And  while  the 
statute  did  in  terms  prohibit  the  transaction  of  business  until  its  provi- 
sions are  complied  with,  yet  whatever  objection  there  might  be  made 
to  a  foreign  corporation  for  noncompliance,  it  being  a  statute  regulating 
a  public  policy,  this  objection  could  not  be  urged  collaterally  by  a  pri- 
vate person,  but  it  must  be  done  by  a  direct  proceeding  instituted  by 
the  state.     Wright  v.  Lee,  (S.  D.)  51  N.  W.  Rep.  706.     See  also  Mor. 
Priv.  Corp.  §  665  ;  Fritts  v.  Palmer,  132  U.  S.  282,  10  Sup.  Ct.  Rep. 
93 ;  Fortier  v.  Bank,  112  U.  S.  439,  5  Sup.  Ct.  Rep.  234 ;  Reynolds 
v.  Bank,  112  U.  S.  405,  5  Sup.  Ct.  Rep.  213  ;  Chase's  Patent  Elevator 
Co.  v.  Boston  Tow  Boat  Co.,  152  Mass.  428,  28  N.  E.  Rep.  300 ; 
Merrlck  v.  Engine  <fc  Governor  Co.,  101  Mass.  384. 

The  cases  which  we  have  cited  from  the  various  classes  demonstrate, 
perhaps,  the  lack  of  uniformity  with  more  certainty  than  they  point  to 
the  correct  rule  of  construction.  Yet  when  studied,  the  cases  are  all 
found  seeking  one  common  object, — the  legislative  purpose.  "The 
intent  of  the  law  maker  is  the  law  ;  "  tue  embarrassment  is  In  declar- 
ing that  intent.  This  intention  may  be  declared  in  the  act,  or  it  ma}' 


WASHBUKN   MILL   CO.   V.   BARTLETT.  521 

be  inferred  from  its  provisions  in  connection  with  the  subject  matter  and 
circumstances.  Howell  v.  Stewart,  54  Mo.  400  ;  Machine  Co.  v.  Cold- 
well,  54  Ind.  279.  In  the  statute  under  discussion  the  legislature  speci- 
fied reasonable  terms  upon  which  a  foreign  corporation  could  launch 
its  business  over  the  entire  state,  unquestioned  by  private  interests  or 
sovereign  power.  Whatevermay  have  been  the  primarypurrjose^of 
the^legislature.  it  certainly  was_noL-taHxclucte  foreign  corporations^ 
from  the  state.  Nor  is  it  reasonable  \<^  prognrqp  H\at  it  was  the  legis- 
lative intent  to  declare  all  contracts  aade  b 


without  compliance  witlTthe  siatute~absolutely  void.  It  were  a  reflec- 
tion upon  legislative  wisdom  to  presume  that  consequences  so  unusually 
harsh  and  oppressive  were  expected  to  flow  from  the  use  of  language 
so  mild  and  uncertain.  Our  statute  is  a  simpleinhibition.  It-dgcjares 
no  penalty.  It  does  notHeciare_mejTppgar>tion  f>Lhllsiripaa  nnln.wf.nl 
precontracts  voidl  We  may  well  use  the  language  of  Justice  Swayne 
in  JZcrnk  v.  Matthews,  supra:  "  The  statute  does  not  declare  such  a 
security  void.  It  is  silent  upon  the  subject.  If  congress  so  meant,  it 
would  jiave  bppn  .gasy  to  say  so;  and  it  is  hardly  to  be  believed  thatf" 
thfswould  not  have  been  done,  instead  of  leaving  the  question  to  be 
settled  by  the  uncertain  result  of  legislative  and  judicial  decision." 
The  statute  byits^  terms  planes  forftign^corjjorations  upon  an  equality 
with  domestic^  corporations  in  thfl  mntt.p.r  nf~fchp.  pnhTinityof  thg  pur- 
poses of  theirereation  and  their  powers,  and  in  the  matterof  converiP 
^nceandcertainty  witn  which  process  ma3r  be  served  upon  them.  It  is 
not  P£gslbleto  read  the  it-flitin*-0  withnnt  pflrnfrivinoTtbis  to  have  been 
the  primaiy  purpose  of  its  enactment.  These  objects  are,  or  may  be, 
highly~~necessary  lor  tne  protection  and  convenience  of  our  citizens 
dealing  with  such  corporations.  The  legislature,  having  specified  the 
duties  of  the  foreign  corporation,  provided,  in  Ch.  26  of  the  Civil  Code, 
the  means  for  their  enforcement,  and  made  it  the  duty  of  every  prose- 
cuting attorney  to  see  that  such  conditions  were  fulfilled,  or  the  cor- 
poration barred  from  the  exercise  of  any  corporate  franchise  within 
this  state.  This  we  believe  to  have  been  the  remedy,  and  the  only 
reined}7,  in  the  mind  of  the  legislature.  These  respondents  dealt  with 
appellant  as  a  corporation.  They  received  and  retained  its  property^ 
and  executed  tLieir  obligation  Lo  pay  for  Lhe  same.  The  corporation 
has  fulfilled  its  contract,  and  now  respondeiits^withpjit  offering  to 
reLuiirtne  consideration  for  their  note,  ask  tbatithey  be  released  fronL 
the  perform  ance  of  their  contract,  for  no  reason  other  than  the  failure 
of  appellant  to  perform  a  duty  that  it  gwgd_tp  t|frp  state  at  large^  jmt_ 
the  nonperformance^of  which  in  no  manner  prejudiced  respondents. 
We  are  unwilling  to  ingraft  upon  a  silent  statute  a  consequence  so 
inequitable.  Upon  both  principle  and  authority,  respondents  are  pre- 
cluded from  raising  the  question  of  noncompliance  upon  the  part  of 
appellant  with  the  provisions  of  said  §§  3190,  3192,  Comp.  Laws.  The 
facts  alleged  in  the  answer  did  not  invalidate  the  contract,  and  the 
demurrer  should  have  been  sustained  upon  that  ground. 


522        BISSELL  V.  MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

It  will  not  be  necessaiy  nor  proper,  in  view  of  what  we  have  said 
upon  the  second  assignment  of  error,  for  us  to  discuss  the  constitu- 
tional question  raised  03-  the  third  assignment. 

The  District  Court  is  ordered  to  vacate  its  order  heretofore  entered, 
and  enter  an  order  sustaining  the  demurrer. 

Reversed.     All  concur. 


SECTION  VIII. 

Suit  against  Corporation  on  an   Ultra   Vires  Contract  which 
has  been  fully  performed  on  the  Plaintiff's  Part. 

BISSELL  v.  THE  MICHIGAN   SOUTHERN  AND  NORTHERN 
INDIANA  RAILROAD   COMPANIES. 

I860.     22  New  York,  258. 

APPEAL  from  the  Supreme  Court.  Action  against  two  distinct  rail- 
road corporations  for  a  breach  of  their  duty,  safely  to  convey  the 
plaintiff,  a  passenger  upon  a  train  of  cars,  which  they,  by  a  contract 
between  them,  had  united  in  running,  and  by  means  of  the  negligence 
of  their  agents  suffering  a  collision  with  another  train,  by  which  the 
plaintiff's  leg  was  broken.  The  trial  was  before  referees,  who  found 
these  facts : 

The  Michigan  Southern  Railroad  Company  was  chartered  by  the 
State  of  Michigan  to  build  and  operate  a  railroad  through  the  southern 
part  of  Michigan  ;  and  the  Northern  Indiana  Railroad  Company  was 
chartered  by  the  State  of  Indiana  to  build  and  operate  a  railroad 
through  the  northern  part  of  the  State  of  Indiana.  The  Southern 
Michigan  Railroad  Company  built  the  road  through  the  State  of 
Michigan,  and  the  Northern  Indiana  Railroad  Compan}-  built  the  road 
through  the  State  of  Indiana ;  and  also,  in  conjunction  with  another 
railroad  company,  they  built  the  railroad  from  the  northern  part  of  the 
State  of  Indiana,  through  a  part  of  the  State  of  Illinois,  to  the  city  of 
Chicago.  Previous  to  the  25th  day  of  April,  1853,  the  Southern 
Michigan  Railroad  Company  and  the  Northern  Indiana  Railroad  Com- 
pany formed  a  business  connection,  under  the  name  of  the  Michigan 
Southern  and  Northern  Indiana  Railroad  Companies,  and  on  or  about 
the  25th  day  of  April,  1853,  ran  their  cars  carrying  passengers  and 
freight  from  Lake  Erie  to  Chicago  and  the  intermediate  places,  and 
from  Chicago  to  Lake  Erie  and  the  intermediate  p^pa,  through__the 
States  or  Ohio,  Michigan,  Indiana  and  Illinois.  The  cars  and  other 
•property  cuuui'uled  with  Ihesfe  roads  were  used  by  the  Michigan  South- 


BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.        523 

ern  and  Northern  Indiana  Railroad  Companies  jointly,  and  each  shared 
in  the  profits  and  losses.  The  business  of  the  companies  was  carried 
on  and  transacted  under  their  joint  name,  and  the  companies  were 
practically  consolidated  into  one.  The  defendants,  on  the  25th  day  of 
April,  1853,  and  at  the  time  this  action  was  brought,  had,  in  the  city 
of  New  York,  in  this  State,  a  general  office  of  business,  occupied  b}- 
their  president  and  treasurer,  where  a  large  portion  of  their  monejs, 
funds  and  other  propert}'  was  kept.  On  the  25th  day  of  April,  1853,  - 
while  the  defendants  were  jointl}'  operating  these  roads,  from  Chicago 
to  Lake  Erie,  through  the  States  of  Illinois,  Indiana,  Michigan  and 
Ohio,  to  Lake  Erie,  the  defendants  took  into  a  train  of  their  cars  near 
Chicago,  in  the  State  of  Illinois,  the  plaintiff  and  his  baggage,  asll 
passenger  therein,  to  Toledo,  for  fare  and  reward.  While  the  plaintiff 
was  on  the  defendants'  cn.rs,  n.n^  whiio  v>pino-  pftpveved  bv  them  east- 
wftrij^nn^  sq,id  marl,  in  t,)ie  State  of  Illinois,  the  defendants'  cars  were 
run__carelessly,  at  a  hazardous  spppd  at  thp.  Crossing  of  the  Illinois 

Central  Railroad,  «H   HIP  ™*d  nn^npipH  nj|d  run  by  thp  ripfpnrlflnta  ;  J^ 

means  whereof  the  defendants'  cars  mn  int.n  and  fame  in  collision  with 

a  train  Of  Cars  then  running  On   fha   TIHnnic 


said  road  owned  nn^  nrvMipWl  hy  t.hp  rlpfpnrlapt.a1  and  a  passenger  car 
ofthedefendants'.  which  the  plaintiff  oronpinrl-,  wnr  ljroken__topieces. 
andjthe  plaintiff  damaged  and  injured  in  his  person  andjjroperty. 

The  referees  reported  in  the  plaintiffs  favor  for  $2,5TR)7~for  which 
judgment  was  entered  ;  and  such  judgment  having  been  affirmed  at 
general  term  in  the  sixth  district,  the  defendants  appealed  to  this 
court. 

Charles  Tracy,  for  the  appellants. 

Amasa  J.  Parker,  for  the  respondent. 

COMSTOCK,  Ch.  J.  A  general  statement  of  the  plaintiff's  case  is,  that 
the  two  corporations  defendant  were  jointly  engaged  in  the  business 
of  carrying  passengers  and  freight  between  Chicago  and  Lake  Erie, 
through  a  part  of  the  State  of  Illinois,  and  through  the  States  of 
Indiana  and  Michigan,  by  three  connected  railroads  which  they  owned 
or  controlled,  and  the  business  of  which  was  managed  under  a  consoli- 
dated arrangement  which  had  been  in  force  between  the  defendants  for 
some  time  previous  to  the  injury  complained  of;  that,  being  so  engaged, 
the}'  undertook  and  assumed  to  carry  him,  the  plaintiff,  as  a  passenger 
from  Chicago,  or  a  point  near  that  place,  eastward  over  the  consolidated 
line  of  road  ;  that  he  took  his  seat  in  their  cars  accordingly,  and  that 
during  the  transit  he  was  injured  by  an  accident  which  happened 
through  their  carelessness  and  neglect.  Assuming  the  trnf-h  ^f  thia... 
statement,  there  is  no  doubt  of  the  plaintiffs  right  to  recover.  Bui,  the 
detciulaiils  UtJiiy  lliu  lentil  trntrToFtbese  facts,  because  one  of  the  com- 
panies was  chartered  by  the  legislature  of  Michigan,  with  power  to 
build  a  road  in  that  Stated  ancTthe  other  ~bv_  the  legisLatnrp  of  Indiana, 
wjth  power  to  build  one  in  that  State.  Theyboth  insist  t.lmt  t.hoy  had 
no  right  or  power  under  their  respective  charters  to  consolidate  their 


524        BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

business  in  the  manner  stated,  and  especially  that  they  could  not 
legally,  either  separately  or  jointly,  acquire  the  possession  and  use~qf 
a  connecting  road  in  the  State  of  Illinois  and  undertake  to  carry  pas- 
sengers or  freight  over  the  same.  They  do  not  deny  that  their  boards 
oT~dTTectofs~and  agents,  duly  authorized  to  wield  all  the  powers  which 
the  corporations  themselves  possessed,  entered  into  the  arrangements 
whTcIThave  been  mentioned,  nor  that,  in  the  execution  of  those  arrange- 
ments.they  made  the  contract  with  the  plaintiff  to  carry  him  as  a 
ppggpnwr-  nor  fin  t.hpy  deny  that  they  received  the  benefit  of  that 
contract  in  the  customary  fare  which  he  paid,  TJieir  jefence  is?  simply 
and  purelj.  Jihat  they  tran&cendcd-th^ir  own  jpowers  and^violated  JJiek 
own  organic^  IQWS. t>nthis  ground  they  insist  tHatT  their  business  was 
not,  in  judgment  of  law,  consolidated ;  that  they  did  not  use  and 
operate  a  road  in  Illinois ;  that  they  did  not  undertake  to  carry  the 
plaintiff  over  it ;  and  did  not,  by  their  negligence,  cause  the  injury  of 
which  he  complains ;  but  that  all  jtbese  acts  and  proceedings  jvere^jn, 
legaL-Ccntemplatioiu>ibe  ^.cts^ajid  proce^lB^s^f^We^^^l^ers^ma^. 
who  wexe^acliuilly  engaged  in  prompting  the  sarne^. 
"~~Can  then  two  railroad  corporations,  having  connecting  lines,  thus 
unite  their  business,  for  the  purpose  of  promoting  their  common 
interest :  charter  another  connecting  road  in  furtherance  of  the  same 
policy :  hold  themselves  out  to  the  public  as  carriers  over  the  whole 
route :  enter  into  contracts  accordingly :  receive  the  benefit  of  those 
contracts ;  and  then,  when  liabilities  arise,  interpose  the  violation  of 
their  own  charters  to  shield  them  from  responsibility?  Such  a  defence 
is  shocking  to  the  moral  sense,  and  although  it  appears  to  have  some 
support  in  judicial  opinions,  I  think  it  has  no  foundation  in  the  law. 

The  doctrine  has  certainly  been  asserted  on  some  occasions,  that,  in 
all  cases  where  the  contracts  and  dealings  of  a  corporation  are  claimed 
to  be  invalid  for  want  of  power  to  enter  into  the  same,  a  comparison 
must  be  instituted  between  those  contracts  and  dealings  and  the  charter, 
and,  if  the  charter  does  not  appear  to  embrace  them,  then  that  they 
must  be  adjudged  void  to  all  intents  and  purposes,  and  in  all  conceivable 
circumstances.  The  reasoning  on  which  this  doctrine  lias^beenusiially 
claimed  to  rest,  denies,  in^n(gcT1  Tliat~corix)rations  can,  or  ever^do, 
exc^ed'theirjji^er^r  Theyare  said  to  be  artificial  beings,  having 
certain^1 acuities  given  to  them  by  law,  which  faculties  are  limited  to 
the  precise  purposes  and  objects  of  their  creation,  and  can  no  more  be 
exerted  outside  of  those  purposes  and  objects  than  the  faculties  of  a 
natural  person  can  be  exerted  in  the  performance  of  acts  which  are  not 
within  human  power.  In  this  view,  these  artificial  existences  are  cast 
in  so  perfect  a  mould  that  transgression  and  wrong  become  impossible. 
The  acts  and  dealings  of  a  corporation,  done  and  transacted  in  its 
name  and  behalf  by  its  board  of  directors,  vested  with  all  its  powers, 
are,  unless  justified  by  its  charter,  according  to  this  reasoning,  the  acts 
and  dealings  of  the  individuals  engaged  in  them,  and  for  which  they 
alone  are  responsible.  But  such,  I  apprehend,  is  not  the  nature  of 


BISSELL  V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.        525 

these  bodies.  T-Hrfi  natural  pprspns,  they  can  overleap  the  legal  and 
moral  restraints  imposed  upon  them  :  in  other  words,  they  arc  cap.ihlq 
of  doing  wrong.  TIL  say  that  a  corporation  has  no  right  to  do  unau- 
thorized acts,  is 'only  to  put  forth  a  very  plain  truism  ;  but  to  say  that 
"such  bodies  have  no  power  or  capacit}T  to  err,  is  to  impute  to  them  an 
excellence  which  does  not  belong  to  any  created  existences  with  which 
we  are  acquainted.  The  distinction  between  power  and  right  is  no 
more  to  be  lost  sight  of  in  respect  to  artificial  than  in  respect  to  natural 
persons. 

I  think  this  doctrine  of  theoretical  perfection  in  corporations  would 
convert  them  practically  into  most  mischievous  monsters.  A  banking 
institution,  through  its  board  of  directors,  may  invest  its  funds  in  the 
purchase  of  stocks  or  cotton,  and  every  holder  of  its  stock  ma}'  acquiesce, 
expecting  to  profit  by  the  speculation.  If  the  enterprise  is  successful, 
the  corporation  and  its  stockholders  gain  by  the  result.  If  a  depression 
occurs  in  the  market,  and  disaster  is  threatened,  the  doctrine  that  a 
corporation  can  never  act  outside  of  its  charter  enables  it  to  sa}T,  "  this 
is  not  our  dealing,"  and  the  money  used  in  the  adventure  may  be 
unconditionally  reclaimed  from  whatever  parties  have  received  it  in 
exchange  for  value ;  while  the  injured  dealer  must  seek  his  remedy 
against  agents  perhaps  irresponsible  or  unknown.  Corporations  may 
thus  take  all  the  chances  of  gain,  without  incurring  the  hazards  of  loss. 
Familiar  maxims  of  the  law  must  be  reversed.  In  the  relation  of 
private  principal  and  agent,  the  adoption  of  an  agent's  unauthorized 
dealing  is  equivalent  to  an  original  authority ;  and  the  adoption  is 
perfect  when  the  principal  receives  the  proceeds  of  that  dealing. 
Corporations  may  practically  act  in  the  same  manner.  The  proceeds 
of  unauthorized  adventures  may  be  received  and  become  blended  with 
their  legitimate  business  and  funds  so  as  to  be  wholly  undistinguishable ; 
but,  as  the  adventures  themselves  were,  in  judgment  of  law,  impossible, 
considered  as  corporate  transactions,  so  the}'  cannot  become  possible 
upon  any  principle  of  ratification  or  estoppel.  If  we  say  there  is  an 
utter  absence  of  power  or  faculty  to  engage  in  the  dealing,  it  is  a 
self-evident  proposition  that  no  rule  of  estoppel  can  change  the  result. 

It  is  not  uncommon,  in  charters  of  corporations,  to  lay  express  pro- 
hibitions upon  them  as  a  limitation  of  their  powers,  having  in  view  the 
maintenance  of  some  public  policy;  as,  for  example,  prohibitions 
relating  to  the  currency  of  the  State.  If  they  violate  these  prohibi- 
tions, they  have  been  supposed  to  be  public  offenders,  and  on  that 
ground  the  law  has  always  denied  to  them  its  remedial  processes  either 
in  affirmance  or  disaffirmance  of  their  unlawful  contracts  ;  thus  regard- 
ing them  as  private  offenders  are  regarded.  But  this  rule  of  law  must 
be  overthrown,  if  we  admit  this  theory  of  constitutional  inability  in 
corporations  to  overstep  the  limits  of  rightful  power.  In  the  case  of 
The  Life  and  Fire  Insurance  Company  v.  The  Mechanics'  Fire 
Insurance  Company  (7  Wend.,  31),  it  was  contended  that  a  certain 
corporate  transaction,  if  unlawful,  was  to  be  regarded  as  the  act  of  the 


526        BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

agents  or  officers  of  the  company,  and  not  of  the  company,  and,  there- 
fore, that  the  pompan}^  should  be  allowed  to  recover  back  the  money 
or  property  improperly  disposed  of.  That  doctrine  was  refuted  by  Mr. 
Justice  SUTHERLAND  in  this  language :  "  This  would  be  a  most  con- 
venient distinction  for  corporations  to  establish  —  that  every  violation 
of  their  charter  or  assumption  of  unauthorized  power  on  the  part  of 
their  officers,  although  with  the  full  approbation  of  their  directors,  is  to 
be  considered  the  act  of  the  officers,  and  is  not  to  prejudice  the  cor- 
poration itself.  .There  would  be  no  possibility  of  ever  convicting  a 
corporati on  of  exceeding  its  powers  and  thereby  forfeiting  its  charter^ 
or4ncurrmg  any  other  penalty,  if  t.hja  pHnnipla  nnuld  be  established. " 
These  remarks  suggest  an  unanswerable  argument  against  the  doctrine. 
Why,  it  may  be  asked,  does  MIR  law  prr>viflR  th?  iTpiedy  bv  quo  icar- 
ranto  again »*  r>r>rpnmt.io^s  for  usurpation  and  ahnsft  nf  powj^r  ?  Is  it_ 
not  the_ynry  fonnd.ition  of  that  proceeding,  that  corporations  nan  and 
do  perform  acts  and  usurp  franchises  beyond  the  rightful  authority 
cdnferrect^by  their  charters?  Most  assuredly  this  is  so.  The  sovereign 
power  of  the  State  interposes,  alleges  the  excess  or  abuse,  and  on  that 
ground  demands  from  the  courts  a  sentence  of  forfeiture. 

One  of  the  sources  of  error  in  reasoning  upon  legal  as  well  as  other 
questions,  is,  inexactness  in  the  use  of  language,  or,  perhaps,  in  the 
perfectness  of  language,  to  express  the  varieties  of  thought.  It  is  a 
self-evident  truth,  that  a  natural  person  cannot  exceed  the  powers 
which  belong  to  his  nature.  In  this  proposition,  we  use  words  in  their 
literal  and  exact  sense.  In  the  same  sense,  it  is  a  truth  equally  evident 
that  a  corporation  cannot  exceed  its  powers ;  but  this  is  only  asserting 
that  it  cannot  exercise  attributes  which  it  does  not  possess.  As  an 
impersonal  being,  it  cannot  experience  religious  emotion,  or  feel  the 
moral  sentiments.  Corporations  are  said  to  be  clothed  with  certain 
powers  enumerated  in  their  charters  or  incidental  to  those  which  are 
enumerated,  and  it  is  also  said  they  cannot  exceed  those  powers  ;  there- 
fore, it  has  been  urged  that  all  attempts  to  do  so  are  simply  nugatory. 
The  premises  are  correct  when  properly  understood  ;  but  the  conclusion 
is  false,  because  the  premises  are  misinterpreted.  When  we  speak_of 
the  powers  of  a  corporation,  the  term  only  expresges_^hf  privileges  and 
franchises  which  are  bestowed  in  the^  charteT;and^when  we  say  il 
cannot  exercise  other  powers,the  just  meaning'of  the^tnguagcis^  that 
as-lfie^attempt  to  do  so  is  without  authority  of  law,  the  performance 
ofTJnautficmzed  acts  is_a_usurpatibn  whichjnjj^JjcTg,  wrono^to  the  Sjaie, 
QiQ)erhaps,  to  the  shareholders^ Uut  the  usurpation  is  possible.  In 
the  same  sense,  natural  persons  artf  under  the  restraints  ol  raw,  but 
the}7  may  transgress  the  law,  and  when  they  do  so  they  are  responsible 
for  their  acts.  From  this  consequence  corporations  are  not,  in  my 
judgment,  wholly  exempt.  The  prbdIeggs--gmt~fi'aTffikirin8  guanted  are 
nnt  thn  irholp  of  a  corporation.  E;gery  trading  corporation  aggregate 
includes  an  associationof  persons  having  a  coneTrttVb  will,  uudlTtJoarcl 
of  directors  or  other  agency  in  whicli  that  will  is  embodied,  and  through 


BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   EAILROAD   COS.        527 

it.  may-fee-exertgcHn  modes  of  action  notexpressed  in_th&-offfft»kL_ 
law.     Thus,  like  moraland  seiitienT"~beiiigs7~they  may  "and  do  act  in 
o"pposition  to  the  intention  of  their  creator,  and   they  ought  to  be 
accountable  for  such  acts. 

A  great  variety  of  cases  might  be  supposed,  in  which  this  doctrine  of 
corporate  exemption  from  liability  could  not  be  defended  upon  any 
rule  of  reason  or  principle  of  justice.  But  perhaps  none  of  them  would 
afford  a  more  persuasive  illustration  than  the  one  now  under  considera- 
tion. Let  us  look  at  the  facts  and  consider  the  results.  These  cor- 
porations had  boards  of  directors  in  whom  were  vested  even-  power, 
faculty  or  function  which  belonged  to  the  bodies  they  represented.  We 
have  then  no  question  in  the  law  of  agency;  for  the  agents,  if  that  be 
the  proper  term,  had  all  the  powers  of  the  principals.  Indeed,  in  an 
important  sense,  they  were  the  principals  ;  because  their  authority  was 
not  received  by  delegation  from  an}*  other  principal.  These  boards 
proceeded  to  consolidate  the  two  lines  of  road,  and  they  included  in  the 
scheme  another  connecting  road.  This  being  done,  the}-  entered  into 
all  the  relations  of  carriers  with  the  public,  and  the  entire  business  of 
both  companies  was  thus  conducted  for  a  period  of  several  years,  with 
no  complaint  on  the  part  of  the  State  sovereignties  which  granted  the 
charters,  and  none  on  the  part  of  the  shareholders.  All  the  gains  and 
profits  of  the  business  were  received  to  the  use  of  the  corporations,  and 
it  is  to  be  assumed  that  the  shareholders  were  benefited  thereby.  The 
question  arises,  where  were  these  companies  and  what  were  the}*  doing 
during  all  this  period  ?  The  question  would  be  the  same  if  that  mode 
of  conduct  were  to  continue  without  limit  of  time.  If  the  acts  mentioned 
were  in  excess  of  the  powers  granted,  and  if  we  concede  the  doctrine 
that  such  acts  are  in  all  circumstances  to  be  imputed  to  the  agents  who 
perform  them,  the  conclusion  follows,  that  the  corporations  became 
virtually  extinct  by  a  non-user  of  their  franchises.  If  the  business  thus 
conducted  was  not  the  business  of  the  companies,  they  were  engaged  JJL 
nohe  whatever,  and  thus,  practically,  if  not  legally,  ceased  to  exist.  If 
It  was  tne  business  of  the  directors  as  natural  persons,  then  those 
persons  must  be  deemed  not  only  to  have  taken  a  wrongful  possession 
of  all  the  estate  and  funds  of  the  corporations  they  professed  to  repre- 
sent, but  also  to  have  usurped  their  franchises,  and  to  have  stolen  their 
corporate  names  and  seals.  If  this  be  the  legal  interpretation  of  the 
course  of  dealing  and  conduct  actually  carried  on  under  the  acts  of 
incorporation  passed  by  the  legislatures  of  Michigan  and  Indiana,  then 
the  companies  might  have  been  proceeded  against  by  those  States,  not 
on  the  ground  of  a  usurpation  of  powers  and  privileges  which  did  not 
belong  to  them,  but  for  a  total  non-user  of  the  franchises  which  did 
belong  to  them  ;  while,  on  the  other  hand,  writs  of  quo  warranto  might 
have  been  issued  against  the  individual  directors  and  agents  for  usurp- 
ing corporate  rights  without  any  charter  at  all.  (16  Wend.,  655  ;  23 
id.,  193  ;  3  Bl.  Com.,  263.)  These  conclusions  are  not  founded  in  any 
known  principle  or  practice,  and  they  are  totally  opposed  to  the  facts 


528        BISSELL   V.   MICHIGAN   SOUTHEKN,   ETC.   KAILROAD   COS. 

of  the  case.  In  rejecting  them,  we  must  also  reject  the  theory  of 
corporate  perfection  and  immunities  on  which  they  were  based ;  and 
we  are  compelledjo  h^'1  t^nt  those-  Companies,  as  leg;al  and  accountable 
persons,  engaged  themselypg  i"  t.hp.  hnainocq  /^f  "qjryjng  passengers 
and  freight"  under  and  according  to  tHp.  flyrancypmpnt^  which  have  been 
mentioned,  and  Lnereby  placed  themselves  in  that  relation  t.o  the  public, 
aritTEoTne  plamtitf  in  particular,  which  is  the  subject  of  the  present 
TjonTroversy^ 

But  the  (Toctrine,  that  corporations  can  never  be  bound  by  engage- 
ments not  justified  by  the  grant  of  power  from  the  State,  is  next 
defended  on  a  different  ground.  Although  it  be  conceded  that  they 
are  present,  and  acting  as  legal  persons,  or  entities,  when  such  engage- 
ments are  entered  into,  it  is  said  that  all  contracts  in  excess  of  the 
rightful  power  possessed  by  corporations  are  illegal  and  therefore  void. 
This  is  an  argument  totally  different  from  the  one  which  has  been  so 
far  examined,  because  it  necessarily  imputes  the  making  of  the  contract 
to  the  corporate  person  or  being ;  whereas,  the  doctrine  which  I  have 
endeavored  to  refute  denies  that  proposition.  The  very  point  of  the 
supposed  illegality  consists,  or  at  least  it  may  consist,  in  the  perform- 
ance of  acts  perfectly  lawful  in  themselves,  but  which,  being  done  by  a 
corporation,  and  not  b}^  individuals,  are  pronounced  illegal  because 
they  are  so  done  without  authority  contained  in  the  charter. 

But  is  it  trmi  that  nil  rnntracts  of  corporations  far  pnrpn^  no* 
embraced  in  their  charters  are  illegn.1t  in  the  appropriate  sensa  of  that 
Term  ?  This  proposition  I  must  deny.  Undoubtedly  such  engagements 
may  have  the  vices  which  sometimes  infect  the  contracts  of  individuals. 
Tjiey  may  involve  a  malum  in  se  or  a  malum  prnMMtn<m.,  anH  may  fyq_ 
void  for  any  cause  which  would  avoid  the  contract  of  a  natural  person, 
jjut  where  no  suchjvices  exist,  and  the  only  defect  is  one  of  power,  the 
contract  cannotHb^yoid  hprmnsp  it.  jfi  jllppffi  or  immoral.  Such  a  doctrine 
may  have  some  slight  foundation  in  the  earlier  English  railway  cases 
( The  East  Anglian  Railway  Co.  v.  The  Eastern  Counties  Railway 
Co.,  1  Eng.  Law  and  Eq.,  509 ;  McGregor  v.  The  Deal  and  Dover 
Railway  Co.,  16  id.,  180) ;  but  it  was  never  established,  and  is  not 
now  received  in  the  English  courts.  ( The  Mayor  of  Norwich  v.  The 
Norfolk  Railway  Co.,  30  Eng.  Law  and  Eq.,  120;  Eastern  Counties 
Railway  Co.  v.  Hawkes,  35  id.,  8,  37.)  The  books  are  full  of  cases 
upon  the  powers  of  corporations  and  the  effect  of  dealing  in  a  manner 
and  for  objects  not  intended  in  their  charters ;  but  with  the  slight 
exception  named,  there  is  an  entire  absence,  not  only  of  adjudged 
cases,  but  of  even  judicial  opinion  or  dicta,  for  the  proposition  that 
mere  want  of  authority  renders  a  contract  illegal.  Such  a  proposition 
seems  to  me  absurd.  The  words  ultra  vires  and  illegality  represent 
totally-different  and  distinct  ideas.  Hi  1§  true  thatlT contract  may  have 
'Both  those  defeats,  bunt  ma}^  also  have  one  without  the  other.  For 
example,  a  bank  has  no  authority  to  engage,  and  usually  does  not 
engage,  in  benevolent  enterprises.  A  subscription,  made  by  authority 


BISSELL  V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.        529 

of  the  board  of  directors  and  under  the  corporate  seal,  for  the  building 
of  a  church  or  college  or  an  almshouse,  would  be  clearly  ultra  vires, 
but  it  would  not  be  illegal.  If  every  corporator  should  expressly 
assent  to  such  an  application  of  the  funds,  it  would  still  be  ultra  vires, 
but  no  wrong  would  be  committed  and  no  public  interest  violated.  So 
a  manufacturing  corporation  may  purchase  ground  for  a  school  house 
or  a  place  of  worship  for  the  intellectual,  religious  and  moral  improve- 
ment of  its  operatives.  It  ma}*  buy  tracts  and  books  of  instruction  for 
distribution  amongst  them.  Such  dealings  are  outside  of  the  chapter ; 
but,  so  far  from  being  illegal  or  wrong,  they  are  in  themselves  benevo- 
lent and  praiseworthy.  So  a  church  corporation  may  deal  in  exchange. 
This,  although  ultra  vires,  is  not  illegal,  because  dealing  in  exchange 
is,  in  itself,  a  lawful  business,  and  there  is  no  State  policy  in  restraint 
of  that  business. 

To  illustrate  the  subject  in  another  manner :  An  agent  may  make  a 
contract  in  the  name  and  behalf  of  his  principal,  but  not  within  the 
scope  of  his  agency.  If  the  consideration  and  purpose  of  such  a  con- 
tract be  lawful,  it  may  be  void  as  against  the  principal,  but  not  on  the 
ground  of  illegality.  A  corporation  is  not  an  agent  of  the  State,  or,  in 
any  strict  sense,  of  the  shareholders.  But  it  derives  its  powers  from 
the  State,  and  it  may  transcend  those  powers  for  purposes  which,  in 
themselves  considered,  involve  no  public  wrong.  Contracts  so  made 
may  be  defective  in  point  of  authority,  and  ma}-  contemplate  a  private 
wrong  to  the  shareholders  ;  but  they  are  not  illegal,  because  they  violate 
no  public  interest  or  policy.  My  meaning,  in  short,  is  that  the  illegality 
of  an  act  is  determined  in  its  quality  and  rlnppt  not,  depend  on  the  person 
or  being  which  performs  it. 

There  has  been,  I  think,  some  want  of  reflection,  even  in  judicial 
minds,  upon  the  reasons  and  policy  which  mainly  govern  in  the  granting 
of  charters  to  corporations,  with  certain  specified  powers  and  no  others. 
A  private  or  trading  corporation  is  essentially  a  chartered  partnership, 
with  or  without  immunity  from  personal  liability  beyond  the  capital 
invested,  and  with  certain  other  convenient  attributes  which  ordinary 
partnerships  do  not  enjoy.  It  is  also  something  more  than  a  partner- 
ship, because  the  legal  or  artificial  person  becomes  vested  with  the  title 
to  all  the  estate  and  capital  contributed,  to  be  held  and  used,  however, 
in  trust  for  the  shareholders.  Now,  in  a  well  regulated  unincorporated 
partnership,  the  articles  entered  into  by  the  associates  specify  the 
objects  of  their  association.  But,  suppose  the  same  associates  desire  a 
charter  of  incorporation  for  the  more  convenient  prosecution  of  the 
same  business,  and  obtain  one.  We  shall  find  it  to  contain  the  like 
specification,  which  becomes  the  grant  of  power  from  the  sovereign 
authority  of  the  State.  I  am  speaking  of  powers  and  privileges  granted 
which  are  not,  in  their  essential  nature,  corporate  or  public  franchises, 
as  distinguished  from  the  private  enterprises  which  an}'  class  of  citizens 
may  embark  in  ;  and,  with  the  exception  of  municipal  or  governmental 
charters,  the  class  of  powers  here  referred  to  will  be  found  to  cover 

34 


530        BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

nearly  the  whole  field  of  corporate  rights.  It  is  not  difficult,  then,  to 
see  the  reason  and  policy  which  underlie  such  grants.  The  associates 
ask  for  a  charter  in  order  to  carry  on  their  business  with  greater 
advantages  ;  and  the  same  reason  exists  for  a  specification  of  the  pur- 
poses of  their  organization  as  in  the  case  of  an  association  without  a 
charter.  The  charter  takes  the  place  of  the  articles  of  agreement,  and 
becomes  the  appropriate  rule  of  action.  No  public  interest  or  policy  is 
i  n  volvedT  because  the  objects  of  the  grant  are  not  of  a  public  .nature. 

TThepowers  and  rights  specified  are  identical  with  those  which  any 
privateperson  or  association  of  persons  may  exercise.  If  those  who 

Tnanagethe  concerns  of  a  simple  partnership  deal  with  the  funds  in  a 
manner  or  for  purposes  not  specified,  their  acts  are  ultra  vires  ;  and  if 
the  directors  of  such  a  corporation,  as  I  am  here  speaking  of,  do  the 
same  thing,  their  acts  are  also  ultra  vires  in  the  same  sense  and  no 
other.  To  apply  the  word  "  illegality"  to  such  transactions,  is  to  con- 
found things  of  a  totally  different  nature.  It  is  only  private  interests 
which  are  affected  by  them  ;  and  there  is  no  statute  or  rule  of  the 
common  law  b}-  which  they  become  public  offences. 

In  every  treatise  upon  the  law  of  contracts  —  and  there  are  man}'  of 
them  —  we  shall  find  an  enumeration  of  such  as  are  immoral  or  illegal  ; 
but  amongst  them  cannot  be  found  a  specification  of  the  promise  or 
agreement  of  a  corporation,  founded  on  a  lawful  consideration,  and  to 
do  that  which  in  itself  is  lawful  to  be  done,  although  not  within  the 
powers  granted.  It  has  always  been  supposed,  and  to  that  .effect  are 
.alMihe  authorities,  that  f-nntrintin  nv  illf^nl  pjHim- 


consideration  or  tne  promise.  Where  both  of  these  are  lawful  and 
right,  the  maxim,  "ecc  turpi  contractu  non  oritur  actio"  can  have  no 
application.  The  incapacity  of  the  contracting  part}-,  whether  it  be  a 
corporation,  an  infant,  a  feme  covert,  or  a  lunatic,  has  nothing  to  do 
with  the  legality  of  the  contract,  in  that  sense  of  the  word  which  is  now 
under  discussion.  So,  in  the  treatises  upon  corporations,  we  shall  find_ 
their  rights  and  prj/vileges__to_be_verv 


_ 

Bownere  an  intimationtbat  their  dealings  outside  of  their  charters  are 
deemed  illegal  foF  that  caused  Even  the  proceeding  against  them  "by 
gutrwai  i  antu,  fui  the  exercise  of  ungranted  powers,  will  illustrate  the 
subject.  This  is  a  civil,  and  not  a  criminal  proceeding,  and  its  object 
is  purely  and  solely  to  try  a  civil  right.  (2  Kyd  on  Corporations,  439  ; 
Angel  &  Ames,  686  ;  1  Scrg.  &  Rawle,  385  ;  3  Dallas,  490  ;  1  Blackf., 
267.)  Our  statute  on  this  subject  makes  it  the  duty  of  the  Attorney- 
General  to  institute  the  proceeding,  under  leave  of  the  court,  when  the 
case  is  one  of  public  interest,  but,  in  other  cases,  only  at  the  instance 
of  private  parties  claiming  to  be  aggrieved  by  the  abuse  of  power,  and 
on  security  being  given  to  indemnify  the  State.  (2  R.  S.,  583,  §§  39, 
40.)  In  any  case,  whether  the  suit  be  founded  on  the  alleged  usurpa- 
tion of  a  public  or  corporate  office,  or  on  the  non-user  or  misuser  of  the 
franchises  granted  to  a  corporation,  it  is  purely  a  civil  right  which  is 
tried,  and  the  judgment  is  not  penal,  but  simply  one  of  ouster  from  the 


BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.         531 

right  claimed.  The  legislature  rnay,  and  sometimes  does,  expressly 
prohibit  the  doing  of  certain  acts  by  corporations,  having  in  view  the 
promotion  of  some  particular  policy  of  the  State,  and  may  declare  such 
acts  to  be  public  offences,  to  be  punished  by  fine  or  imprisonment  of 
the  parties  engaged  in  them.  There  are  such  laws  in  regard  to  incor- 
porated as  well  as  private  banks,  the  object  of  which  is  to  protect  the 
currency  of  the  State.  But  where  there  are  no  such  penalties  or  pro- 
hibitions, and  the  dealings  of  a  corporation  have  no  relation  to  State 
policy,  but  are  such  as  all  mankind  may  freely  engage  in,  the  law  has 
provided  no  punishment  tor  such  dealings,  because  it  does  not  regard 
them  as  a  violation  of  its  principles  and  enactments  in  any  sense  which 
is  material  to  the  present  inquiry.  I  do  not  deny  that  there  is,  in  a 
different  sense,  a  legal  wrong  in  the  misapplication  of  the  corporate 
capital  and  funds ;  and  so  there  is  in  every  breach  of  trust  or  violation 
of  contract.  But  the^  true  inquiry  here  is,  whether  it  belongs  to  the 
class  of  public,  as  distinguished  from  private  wrongs,  so  that  the  guilty 
Earty  may  set  it  up  in  avoidance  of  just  obligations ;  and  whether  the 
courte_must,  in  all  circumstances,  accept  that  defence  withnnt.  rPgnrH 
to  the  situation  and  rights  of  the  other  party ._  I  cannot  believe  such 

t.0  hp.  t.llP  rnlo  of  rpgpnn   m-  nf  lam. 

Let  us  now  concede  that  the  unauthorized  contracts  of  a  corporation 
are  illegal  in  the  sense  contended  for.  It  by  no  means  follows  that 
they  are  never  to  be  enforced.  An  agreement  declared  by  statute  to 
be  void  cannot  be  enforced,  because  such  is  the  legislative  will.  J3ut^ 

When,    Without   ortyoiir.Wfcf'Ini-atir.T^    jj-    ja   Sjmply   i^PO^l,    it.   i»  f'npnhlp  of 

enforcement  wliere^Tustice  plainly  requires  Jt.  Circumstances  may  and 
often  do  exist,  which  estop  the  offender  from  taking  advantage  of  his 
own  wrong.  The  contract  may  be  entered  into  on  the  other  side  with- 
out any  participation  in  the  guilt,  and  without  any  knowledge  even  of^ 
the  vice  which  contami nates ._it.  An  innocent  person  may  part  with 
value,  or  otherwise  change  his  situation,  upon  the  faith  of  the  contract. 
A  railroad  corporation,  for  example,  may  purchase  iron  rails  and  give 
its  obligation  to  pay  for  them  with  a  design  to  sell  them  again  on 
speculation,  instead  of  using  them  for  continuing  its  track.  Such  a 
transaction  is  clearly  unauthorized,  and  is,  therefore,  said  to  be  illegal. 
But  if  the  corporation  is  deemed  to  make  the  contract  —  in  other  words, 
if,  as  I  have  above  shown,  it  is  a  legal  possibility  for  corporations  to 
make  contracts  outside  of  their  just  powers,  how  can  its  illegality  be 
set  up  against  the  other  party  who  knows  nothing  of  the  unlawful  pur- 
pose? So  an  incorporated  bank  may  purchase  land,  having  power  to 
do  so  for  a  banking  house,  but  actually  intending  to  speculate  in  the 
transaction.  This  is  also  ultra  vires,  but  can  the  want  of  authority  be 
interposed  in  repudiation  of  a  just  obligation  to  pay  for  the  same  land, 
the  vendor  not  being  in  pari  delicto?  Such  a  doctrine  is  not  only 
shocking  to  the  reason  and  conscience  of  mankind,  but  it  goes  far  be3'ond 
the  law  in  regard  to  the  illegal  contracts  of  private  individuals. 

As  I  am  not  contending  that  the  unauthorized  dealings  of  a  corpora- 


532        BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

tion  are  never  to  be  questioned,  the  object  of  this  discussion  has  been 
to  ascertain  the  true  ground  on  which  they  can  be  impeached  where 
they  are  not  attended  by  the  vices  which  are  fatal  to  private  contracts 
also.  I  have^shnwri,  T  *'-"rt  1  Thit  innk_dealings  are  possible  in  law. 
as  they  often  take  place  in  fact ;  in  other  words,  that  it  is  in  the  nature, 
orthesejjodies  to  overleap  the  restraints  imposed  upon  them.  2.  JThat 
a  transgression  of  this  nature  is  a  simple  excess  of  power  (using  that 
word  to  express  the  rules  of  action  presnribed  in  their  charters,  and  by 
which  they  ought  to  regulate  their  conduct),  but  is  not  tainted  with 
illegality  crt  n?  trt  nvO'^  tv>t>  ^rmt.rnot,  or  dealing,  on  that  ground.  This 
proposition,  it  seems  hardly  necessary  to  repeat,  is  applied  only  to 
transactions  which  involve  or  contemplate  no  violation  of  the  code  of 
public  or  criminal  law,  but,  on  the  contrary,  are  innocent  and  lawful 
in  themselves.  3.  Even  illegal  contracts,  in  the  proper  sense,  are  not, 
universally  and  indiscriminately,  to  oe  adjudged  void :  ana.  especial!^! 
tins  is  not  so  where  the  offender  alleges  his  own  wrong  to  avoid  justi 
responsibility^  t.hp  of.hpr  party  being  innocent  of  tIie_Q£fe»ee. 
~Tf  thesenegative  conclusions  cannot  be  denied,  it  follows  that  con- 
tracts and  dealings,  such  as  I  have  been  speaking  of,  are  to  be  con- 
demned by  the  courts  onl}'  on  the  ground  that  they  are  a  breach  of  the 
duty  which  private  corporations  owe  to  the  stockholders  to  whom  the 
capital  beneficially  belongs.  It  is  the  undoubted  right  of  stockholders 
to  complain  of  any  diversion  of  the  corporate  iunilij  Lo  pui'[JO!jes~Tinaii- 
thorized  in  the  charter.  This,  as  a  general  principle,  cannot  be  too 
strongly  asserted ;  and  by  this  principle,  justty  applied  to  particular 
instances,  the  question  in  such  cases  is  to  be  resolved.  The  original 
subscribers  contribute  the  capital  invested,  and  they  and  those  who 
succeed  to  their  shares  are  alwaj-s,  in  equity,  the  owners  of  that  capital. 
But,  legally,  the  ownership  is  vested  in  the  corporate  body,  impressed 
with  the  trusts  and  duties  prescribed  in  the  charter.  In  these  relations 
we  have  the  only  true  foundation  of  the  plea  of  ultra  vires.  That  term 
is  of  very  modern  invention,  and  I  do  not  think  it  well  chosen  to  express 
the  only  principle  which  it  can  be  allowed  to  represent  in  cases  of  this 
nature.  It  is  not  to  be  understood  as  an  absolute  and  peremptory 
defence  in  all  cases  of  excess  of  power,  without  regard  to  other  circum- 
stances and  considerations.  It  is  not  to  be  looked  upon  as  a  plea 
which  denies  the  actual  exertion  of  corporate  power  when  a  corporation 
enters  into  an  engagement  which,  according  to  its  charter,  it  ought  not 
to  make ;  but,  because  such  was  the  nature  of  the  contract,  it  presents 
the  breach  of  trust  or  duty  to  the  shareholders  as  an  excuse  for  the 
non-performance.  And  I  do  not  deny  the  validity  of  this  excuse  in 
many  cases,  I  may  say  in  all  cases  where  it  can  be  received  without 
doing  greater  injustice  to  others.  If  the  person  dealing  with  a  corpora- 
tion  knows  of  the  wrong  done  or  contemplated,  and  he  cannot  show 
ttre~acquicscence  of  the  shareholders,  he  ought  not  to  complainif_he_ 
cannot  enforce  the  contract!  Aside  from  the  law  of  corporations, 
agreements  which  involve  or  propose  a  violation  of  trust  will  not  be 


BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   KAILROAD   COS.        533 

enforced  by  the  courts  where  no  greater  equities  demand  it.  Corporate 
bodies  are  more  than  mere  agents.  The}*  are  more  than  a  partner  who 
manages  as  the  agent  of  his  associates.  Their  powers  are  undelegated. 
They  are  the  legal  owners  of  the  capital,  or  estate,  and  they  have 
capacity  to  deal  with  it  in  contravention  of  duty  or  trust. 

But  the  equitable  rights  of  shareholders  will  enable  them,  in  many 
circumstances,  to  claim  the  affirmative  interposition  of  the  courts  to 
arrest  an  unauthorized  course  of  dealing,  or  to  prevent  a  threatened 
diversion  of  the  capital  to  improper  uses.  Of  this  character  are  many 
of  the  cases  usually  cited,  to  prove  that  corporations  cannot  exceed 
their  powers.  (Dodge  v.  Woolsey,  18  How.  U.  S.,  331 ;  Rolf  v. 
Rogers,  3  Paige,  154;  Angel  &  Ames  on  Corp.,  424, '4th  ed.,  and 
cases  cited.)  So,  too,  it  is  plain,  without  citing  authority,  that  a  stock- 
holder, who  can  show  that  he  has  sustained  a  pecuniary  loss  by  such  a 
use  of  the  capital,  ma}*  have  his  redress  in  damages  against  the  indi- 
viduals who  commit  the  wrong,  unless  he  has  himself  acquiesced. 
These  are  extensive,  and,  it  would  seem,  ample  remedies  to  prevent 
or  redress  the  abuse  of  power ;  and  it  appears  to  me  a  much  higher 
and  better  policy,  that  the  private  shareholders  should  be  confined  to 
these  remedies,  than  to  sacrifice  the  interests  of  the  rest  of  community 
by  conceding  to  these  bodies  absolute  immunity  whenever  power  is 
thus  abused.  But  the  principles  which  belong  to  this  question  need 
not  present  that  naked  alternative.  In  many  cases  no  injustice  will  be 
done  by  receiving  the  plea  of  ultra  vires,  when  defensively  interposed 
by  the  corporation  itself.  But  these  are  cases  where  a  want  of  good 
faith  can  be  imputed  to  the  dealer,  and  where  the  defence,  if  allowed, 
will  leave  the  parties  substantially  in  the  enjoyment  of  their  previous 
rights.  An  artificial,  not  less  than  a  natural  person,  having  the  title 
and  possession  of  an  estate  which,  in  equity,  belongs  to  others,  and 
entering  into  engagements  inconsistent  with  duty  or  trust,  should  have 
a  locus  penitentice,  where  it  can  be  allowed  without  manifest  wrong  to 
others.  It  may  be  difficult  to  lay  down  a  rule  so  general  and  so  exact 
as  to  include  every  case  ;  but  the  principles  and  analogies  of  the  law 
will  be  sufficient  for  the  solution  of  such  questions  as  they  arise. 
Justice,  not  only  in  this,  but  in  very  many  other  cases  of  constant 
occurrence,  can  be  administered  according  to  law,  if  I  have  succeeded 
in  showing,  negatively,  that  a  comparison  of  the  charter  of  a  corporation 
with  what  it  actually  does  is  not  always  the  test  of  liability. 

It  is  said  that  there  will  be  no  restraint  upon  the  acts  and  dealings  of 
corporate  bodies,  if  we  uphold  them  when  in  excess  of  rightful  authority*. 
To  this  I  answer,  that  the  most  ample  restraints  will  be  found  in  tbe_ 
principles  here  advocated  ;  while,  on  the  ot.hpr  hand,  if  WP  nonnprlft  tn 
corporations  immunity  in  all  nasps  whpn  they  do  Tp'rr>r>g/  wp  '"v^/>  qnrT 
reward  the  very  abuse.  It  is  also  said,  in  order  to  render  this  doctrine 
less  offensive  to  the  reason  and  conscience,  that  the  innocent  dealer 
may,  upon  the  voidness  of  the  contract  and  a  disaffirmance  of  it,  recover 
back  the  value  or  consideration  with  which  he  has  parted.  This  position 


534        BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 


necessarily  cop^pdpg  t,hn.f.  t.hf>  Corporation,  as  a  legal  person,  made  the 
u  nau  thprized  contract.  !\nfl  reneivpfl  t.hp  money,  or  value,  under  and 
accordTngJojt  :  tillllR  ovprt1"1^""'1^  fhr>  ™*«in  objection  to  its  liability  to 
respond  directly  nprm  ti!1p  j^"*™^  It  also  concedes  the  innocence  of 
lie  other  contracting  part}"  ;  thus,  according  to  all  the  analogies  of  the 
law,  refuting  the  only  other  objection  (illegalit}')  on  which  the  absolute 
invalidity  of  such  dealings  is  claimed  to  rest:  for,  surely,  after  conced- 
ing that  the  corporation  actually  made  the  contract,  it  will  not  be  con- 
tended that  it  can  set  up  that  it  ought  not  to  have  made  it,  against  an 
innocent  person  who  has  given  up  his  money  or  property  on  the  faith 
of  the  same  contract.  But  I  answer,  further,  that  while  in  man}'  cases 
the  TRinprlv  of  a  suit,  in  disaffirmance  of  the  agreement,  and  to  recover^ 
hooLr  tho  /.^nRiriornt.ir.nj  wjH  he  sufficient  to  prevent  wrong;,  in  many 
others  it  will  be  entirely  wnvtlilpsa.  All  collateral  securities  must  falF 
to  the  ground  with  the  principal  contract,  and  all  its  consequences  and 
results.  The  present  case  will  afford  the  best  illustration.  The  defend- 
ants, in  consideration  of  a  trifling  sum  received  from  the  plaintiff  for 
fare,  agreed  to  perform  the  service  of  carrying  him  in  their  cars,  perhaps 
some  two  hundred  miles.  By  the  negligent  performance  of  that  agree- 
ment, they  inflicted  on  him  injuries  for  which  a  jury  has  said  the  proper 
compensation  was  $2,500.  This  being  the  measure  of  damages  for  the 
breach  of  the  contract,  the  absurdit}',  not  less  than  the  injustice,  of 
confining  him  to  the  remedy  of  disaffirmance  because  the  agreement 
was  ultra  vires,  must  be  quite  apparent. 

I  have  examined  these  questions  with  the  more  attention,  because, 
aside  from  their  bearing  on  the  present  controversy,  they  are  of  great 
practical  importance.  A  vast  amount  of  the  business  of  the  community 
lias  come  to  be  carried  on  under  corporate  forms  of  organization. 
Besides  innumerable  special  charters,  we  have  general  laws  which 
impart  corporate  attributes  to  associations  formed  according  to  articles 
of  agreement,  for  a  great  variety  of  purposes.  When  we  consider 
these  to  be  any  less  than  partnerships,  with  the  superadded  privileges  of 
succession,  of  a  corporate  seal,  &c.,  we  forget  that  corporations  are  no 
longer  confined  to  the  exercise  of  public  or  political  franchises.  These 
commercial,  manufacturing,  and  trading  bodies  are  brought  into  relation 
with  almost  every  member  of  the  community  ;  and  I  think  it  greatl}-  to 
be  desired  that,  in  laying  down  the  rules  of  law  which  are  to  govern  in 
such  relations,  we  should  avoid  a  S3"stem  of  destructive  technicalities. 
Those  rules  should  be  founded  in  the  principles  of  justice  which  are 
recognized  in  other  and  analogous  dealings  among  men. 

If  we  could  find  the  law  to  be  settled  in  the  manner  which  must  be 
and  is  contended  for  in  order  to  exonerate  the  defendants  in  this  case 
from  responsibility,  it  would  be  our  duty  to  follow  it.  But  such  is  not 
the  case.  There  are,  certainly,  judicial  opinions,  and  some  adjudged 
cases,  which  countenance  the  extreme  doctrines  on  which  the  defence 
must  rest.  Among  these  cases,  a  leading  one  is  that  of  Hood  v.  The 
New  York  and  New  Haven  Railroad  Company  (22  Conn.,  502). 


BISSELL   V.    MICHIGAN    SOUTHERN,   ETC.   RAILROAD   COS.         535 

That  case  appears  to  go  the  length  of  holding  that  corporations  cannot 
and  never  do  perform  acts  in  excess  of  their  powers.  No  authority  r 
was  cited  for  such  a  proposition,  and  it  cannot,  as  I  think  I  have  shown, 
be  maintained.  Another  extreme  authority  is,  Pearce  v.  The  Madison 
and  Indianapolis  Railroad  Company  (21  How.  U.  S.,  442),  where  it 
appeared  that  a  corporation,  in  furtherance  of  its  general  objects, 
although,  strict^  speaking,  in  excess  of  its  powers,  had  entered  into 
an  engagement  upon  a  consideration  which  it  had  received  and  appro- 
priated. It  was  allowed  to  repudiate  that  engagement ;  but  the  prin- 
ciples of  the  question  were  not  much  discussed.  A  considerable  number 
of  other  cases  and  dicta,  of  a  character  less  marked,  but  tending  in 
the  same  direction,  might  be  referred  to.  But,  on  the  other  hand,  there 
are  well-considered  authorities  which  sustain  the  principles  advocated 
in  this  opinion.  (The  Steam  Navigation  Co.  v.  Weed,  17  Barb., 
378  ;  The  Silver  Lake  Bank  v.  North,  4  Johns.  Ch.,  370  ;  The  Chester 
Glass  Co.  v.  Dewey,  16  Mass.,  94,  102  ;  The  Bank  of  Genzsee  v.  The 
Patchin  Bank,  3  Kern.,  309,  314  ;  Bulkley  v.  Derby  Fishing  Co.,  2 
Conn.,  252,  255  ;  Parker  v.  The  Boston  and  Maine  R.  R.,  3  Gush., 
107,  108;  Alleghany  City  v.  McClurkan  et  al.,  14  Penn.,  83;  29 
Verm.,  93.)  In  the  case  from  2d  Connecticut,  it  was  said :  "A  cor- 
porate body,  by  transgressing  the  limits  of  its  charter,  may  do'ubtless 
incur  a  forfeiture  of  its  privileges  and  powers ;  but  who  ever  imagined 
that  it  could  thus  acquire  immunity  to  the  prejudice  of  third  persons?" 
It  will  be  found,  indeed,  that  such  a  doctrine  is  of  verj-  modern  origin. 
In  the  case  from  14th  Pennsylvania,  COULTER,  J.,  observed:  "It  is 
not  universal!}*  true  that  a  corporation  cannot  bind  the  corporators 
be}-ond  what  is  expressly  authorized  in  the  charter.  There  is  a  power 
to  contract,  undoubtedly  ;  and  if  a  series  of  contracts  have  been  made, 
openly  and  palpably  within  the  knowledge  of  the  corporators,  the  public 
have  a  right  to  presume  that  they  are  within  the  scope  of  the  authority 
granted.  A  bank,  which  has  been  long  in  the  habit  of  doing  business 
of  a  particular  description,  would  not  be  exonerated  from  liability  y 
because  such  business  was  not  expressly  authorized  in  its  charter.  The 
object  of  all  law  is  to  promote  justice  and  honest  dealing,  when  that 
can  be  done  without  violating  principle.  I  cannot  perceive  that  any 
principle  is  violated  by  holding  a  corporation  liable  for  the  acts  of  its 
accredited  agents,  even  not  expressh"  authorized,  when  these  contracts 
for  a  series  of  times  were  entered  into  publicly  and  in  such  a  manner 
as,  by  necessary  and  irresistible  implication,  to  be  within  the  knowledge 
of  the  corporators."  "  One  rule  of  law,"  he  adds,  "  is  often  met  and 
counterchecked  by  another  of  equal  force,  so  that,  although  the  cor- 
porators are,  in  general,  protected  from  unauthorized  acts  of  their 
agents,  yet,  at  the  same  time,  a  rule  of  equal  force  requires  that  they 
should  not  deceive  the  public  or  lead  them  to  trust  and  confide  in  the 
unauthorized  acts  of  their  agents.  If  they  receive  the  avails  and  value 
of  those  acts,  it  is  implicit  evidence  that  they  consented  to  and  autho- 
rized them."  A  more  particular  discussion  of  the  authorities  on  either 


536         BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.    RAILROAD   COS. 

side,  would  not  be  profitable.  The  general  question  is  one  which 
ought  to  be  considered  on  principle  ;  and  I  have  so  viewed  it,  because 
T  find  no  settled  rule  which  stands  in  the  way  of  such  an  examination. 

But  little  more  need  be  said  in  reference  to  the  particular  case  now 
before  us.  If  the  defendants  did  not  become  liable  for  the  breach  of 
their  undertaking  to  carry  the  plaintiff,  or  of  their  duty  resulting  from 
that  undertaking,  I  can  see  no  ground  for  holding  them  accountable  as 
simple  wrongdoers.  If  their  contract  was  ultra  vires,  and  that  defence 
to  an  action  upon  it  must  be  received  as  absolute  and  peremptory  —  if 
no  principle  of  estoppel  or  rule  of  justice  can  be  urged  against  that 
defence  —  then  it  is  more  clear  that  the  simple  wrong  to  the  plaintiffs 
person  was  also  ultra  vires.  It  was  with  considerable  difficulty  that 
the  liability  of  a  corporation  in  any  case  for  a  pure  tort  was  ever 
established  ;  and  they  are  never  so  liable  fvpppf,  wlipji^engaged  in  the 
performance  of  some  duty  or  undertaking  in  respect  to  which  accounta- 
bility'''^^'!*. —  If  UiG  defendants'  express  undertaking  was  absolutely 
void,  spuiat  no  duty  could  arise  thereupon,  the  implied  imduiluktng~ 
fesulting~from  the  actual  attempt  to  cany  the  plaintiff  as  a  passenger 
is  encountered  by  the  same  objection  ;  and  there  is  nothing  left  of  Hie 
p||rg_and  simple  tort,  committed  by  the  defendants' 


servants  while  not  engaged  in  any  businesswhich  could  bring  responsi- 
bilitiesupon  the  defendants  tuemsctves^  Ithink  it  plain  that  this 
theory  of  liability  will  not  sustain  the  plaintiff's  case. 

But  I  have  no  hesitation  in  affirming  the  judgment  of  the  court  below, 
upon  the  principles  of  contract  and  of  duty  resulting  therefrom.  That 
the  entire  course  of  business  in  which  the  defendants  were  engaged 
could  not  be  justified  by  their  charters,  I  am  not  prepared  to  deny. 
Each  of  them  was  chartered  to  build  a  railroad,  the  termini  of  which 
were  specified.  They  built  the  roads,  and  then  consolidated  their  busi- 
ness. The  common  interest  might  thus  be  promoted  ;  but  it  is  difficult 
to  affirm  that  the  charter  of  either  authorized  its  capital  to  be  thus 
blended  with  that  of  the  other.  It  is  equally  difficult  to  hold  that  they 
had  any  rightful  authority  to  construct  or  lease  another  road  in  continu- 
ation of  the  line.  But  these  things  WPI-P  Dually  done,  and  the}"  were 
done  openly  and  publicly.  If  these  acts  were  an  abuse  of  power,  the 
Shareholders  had  ample  opportunity  to  prevent  or  arrest  the  abuse. 
^But  no  complaint  from  them  has  ever  been  heard,  anrl  t.hpir  ^r.qM^c- 
cence  must  be  presumed.  If  State  sovereignties  were  wronged  by  the 
course  of  dealing  pursued,  no  interference  or  complaint  has  come  from 
that  quarter.  Conceding,  then,  that  the  defendants  might  change  the 
attitude  in  which  they  stood  toward  the  public,  and  return  at  any  time 
to  the  sphere  of  legitimate  duty,  they  could  not  revoke  past  contracts, 
the  consideration  of  which  they  had  received,  and  upon  the  performance 
of  which  they  had  entered.  They  were  bound  to  pay  their  servants 
and  laborers,  and  they  were  liable  for  the  careful  transportation  of 
freight  committed  to  their  charge.  They  could  not  invite  a  traveler 
into  their  cars,  and,  after  injuring  him  by  their  negligence,  reject  the 


BISSELL   V.    MICHIGAN    SOUTHERN,   ETC.    EAILEOAD   COS.        537 

responsibilities  of  their  contract.     A  traveler  from  New  York  to  the 

Mississippi  can  hardly  be  required  to  furnish  himself  with  the  charters 

"bi  all  me  railroads  on  his  route^nr  to  st.ndy  a  treatise  on  the  law  of 

corporations^.     lfte  present  cascTiti  short,  plainly  falls  within  the  prin- 

Of  Corporate    liability  h^yPin    nssprtprl,   nnrl    t.ho    dofnnflnpt"    rnnat. 

liability..     The  judgment  should  be  affirmed. 


SELDEN,  J.  It  was  not  strenuously  insisted  upon  the  argument  that 
the  acts  of  these  two  railroad  companies  in  entering  into  the  arrange- 
ment found  by  the  referee,  and  in  running  their  cars  upon  joint  account 
through  the  States  of  Ohio,  Indiana  and  Illinois,  were  authorized  by 
law  ;  nor  have  I  been  able  to  find  in  the  statutes  of  those  States  any 
sufficient  warrant  for  these  acts.  I  shall  assume,  therefore,  that  in 
undertaking  to  carry  the  plaintiff  from  Chicago,  in  the  State  of  Illinois, 
to  Toledo,  in  the  State  of  Ohio,  the  defendants  exceeded  their  corporate 
powers  ;  and,  as  the  allegation  in  the  complaint,  of  carelessness  and 
negligence  on  the  part  of  the  defendants,  or  their  agents,  is  full}*  sus- 
tained by  the  finding  of  the  referee,  the  defence  must  rest  exclusively 
upon  this  want  of  power.  The  counsel  on  both  sides  have  treated  the 
action  as  founded  upon  contract,  and  in  that  aspect  of  the  case  the 
question  arises  whether  want  of  authority  on  the  part  of  a  corporation, 
to  enter  into  any  engagement,  is  a  valid  defence  to  such  corporation 
when  sued  for  its  violation. 

This  question  has  not  until  lately  attracted  much  attention.  But  the 
recent  rapid  multiplication  of  these  artificial  bodies,  and  the  extensive 
powers  and  privileges  conferred  upon  them,  have  made  it  a  question  of 
importance.  It  has,  within  a  few  years  past,  been  repeatedly  presented 
to  the  courts,  both  in  this  country  and  in  England,  and  with  one  unvary- 
ing result.  I  cannot,  myself,  regard  it,  therefore,  as  in  any  just  sense 
open  to  discussion.  If  questions,  which  have  been  over  and  over  again 
considered,  and  over  and  over  again  decided,  are  to  be  treated  as  still 
unsettled,  then  are  we  without  any  stable  foundation  of  law  or  justice. 
The  evils  attendant  upon  setting  legal  principles  afloat  upon  a  sea  of 
uncertaint}'  and  doubt,  and  causing  them  to  depend  upon  the  fluctuations 
of  individual  opinion  are  too  obvious  to  need  enumeration.  Confidence 
in  courts  is  only  to  be  retained  by  their  exhibiting  stability  in  their  own 
decisions,  and  a  becoming  respect  for  those  of  other  tribunals.  It  has 
been  so  often  and  so  uniformly  decided  that  corporations  are  not  bound 
"are  clearly  ultra  m're^ttiat  to  hold_thft.fi""t-.rnry 


_ 

now"  would  take  the  le<?al  profession  by  surprise,  and  introduce  more  or 
legs  confusion  into  this  imp^^anf.  hmnoh  of  t,[^p  Law. 

But,  while  I  protest  against  considering  this  as  an  open  question, 
and  insist  that  it  should  be  treated  as  settled  by  authorit}",  I  also 
maintain  that  the  numerous  decisions  on  the  subject  by  both  the 
English  and  the  American  courts,  rest  upon  a  solid  foundation  of 
reason  and  principle.  Much  of  the  apparent  force  of  the  arguments 
used  to  prove  the  contrary,  is  produced  by  substituting  entire!}'  false 
basis  for  those  decisions.  If  they  really  rested,  as  has  been  sometimes 


538         BISSELL   V.   MICHIGAN   SOUTHEKN,   ETC.   KAILROAD   COS. 

supposed,  upon  the  ground  that  because  corporations  are  artificial 
beings,  having  no  natural  powers,  but  only  such  as  are  conferred  upon 
them  by  law,  the}*  cannot  by  possibility  do  any  act  beyond  the  limits 
prescribed  by  their  charters ;  and  hence  that  no  such  act,  although 
done  by  their  agents,  in  their  name,  and  for  their  benefit,  can  be  con- 
sidered as  a  corporate  act,  but  must  in  all  cases  be  treated  as  the 
personal  act  of  such  agent,  it  would,  indeed,  be  easy  to  show  their 
fallacy.  This  would  be,  as  is  justly  said,  to  attribute  to  them  a  degree 
of  perfection  that  belongs  to  no  earthly  existence,  whether  natural  or 
artificial.  To  present  this  as  the  true  foundation  of^  the  rule^  which 
exempts  corporations  from  liability  lor  their  unauthorized  acts,  is 
entirely  to  misapprehend  the  whole  doctrine  on  the  subject. 

-No  eolll'C  has  ever  held  that  the  defence  otl  ultra  vires  rested  upon 
any  such  ground,  as  that  the  contract  sought  to  be  enforced  could  not 
be  considered  as  an  act  of  the  corporation.  The  object  of  the  distinc- 
tion, so  frequently  drawn,  between  natural  persons  and  corporations  as 
mere  artificial  existences  with  no  powers  or  faculties  except  such  as  are 
derived  from  their  charters,  is  simply  to  show  that  the  latter  cannot 
legitimately  and  rightfully  exercise  any  powers  but  those  with  which 
they  are  endowed  by  the  law  which  creates  them,  and  not  that  they 
may  not  wrongfully  exceed  the  just  limits  of  those  powers.  The  case 
of  Barry  v.  The  Merchant^  Exchange  Company  (1  Sandf.  Ch.  R., 
280),  will  serve  to  illustrate  the  force  and  application  of  the  distinction. 
The  question  in  that  case  was,  whether  a  corporation,  created  for  the 
purpose  of  erecting  a  building  to  be  used  as  a  public  exchange,  in  the 
city  of  New  York,  had  power  to  borrow  money  to  enable  it  to  accom- 
plish the  object  of  the  incorporation,  no  provision  conferring  this  power 
being  contained  in  the  charter.  The  Vice-Chancellor,  in  deciding  this 
question  in  the  affirmative,  said :  "  Every  corporation,  as  such,  has  the 
capacity  to  take  and  grant  property,  and  to  contract  obligations  in  the 
same  manner  as  an  individual."  This  remark  presents  one  theory  in 
regard  to  the  nature  of  corporations,  which  is,  that  unless  specially 
restrained,  they  have  the  same  power  to  bind  themselves  by  contract 
as  any  natural  person.  The  distinction  referred  to  stands  opposed  to 
this  theory,  and  is  designed  to  show,  that  as  corporations  have  no 
existence  independent  of  their  charters,  they  can,  of  course,  have  no 
powers  except  such  as  are  specifically  conferred. 

When  a  corporation,  sued  for  a  breach  of  contract,  sets  up  as  a_ 
defence  its  own  want  ot'  power  to  enter  into  the  contract,  two  questions 
are  involved:    first,  whether  the  contract  was,  in  truth,  beyond  frho 
corporate  powers ;  and,  second,  if  so.  whether  this  is  available  as  a 
defence.     It  is  only  in  reference  to  the  first  of  these  questions,  and,, to 
prove  that  the  contract  was  really  ultra  vires,  that  the  argnmpnfr.  has 
been  resorted  to,  that  a  corporation  has  no  natural  powers.     The  excess 
of  power  being  established,  the  question,  whether  this  constitutes  a  . 
"valid  defence,  depends  upon  entirely  different  considerations. 
Tne  assumption,  therefore,  that  the  doctrine,  which  declarfia-tbe— 


BISSELL  v.  MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.        539 

unauthorized  contract_of  n  ™rpnrg.tir>n  to  be  voidT  rests  in  anv  decree 
upon  the  theory  thata  corporation  can  np.vpr  ha  snjd.  f,o  have  done 
anything  butwimt  it  bad  a  legitimate  right  to  do.  is  wholly  unwar- 
Tanted  ;  an57hence.  the  irresistible  logic  with  which  it  is  shown  that 
corporation^}  must  necessarily  partake  of  the  imperfection  which  attaches 
-to  all  created  things,  is  wholly  without  force  in  its  application  to  the 
present  case.  Corporations,  as  well  as  natural  persons,  may,  no  doubt. 
err.  They  may  exceed  their  powers  and  violate  their  charters,  and 

may  be  held  responsible  for  so  doin^. WPVP  if-,  ntherwisp^  they  could 

never  be  made  liable  for  a  tort ;  nor  could  they  be  proceeded  against 
bylfuo  warranto. The  statute  which  authorizes  the  Attorney-General 
to  file  an  information  in  the  nature  of  a  quo  warranto  against  an  offend- 
ing corporation  (2  R.  S.,  583,  §  39),  assumes  that  corporations  may 
transgress  the  limits  prescribed  by  their  charters.  Subdivision  5  of  the 
section  referred  to  provides  that  the  proceeding  ma}*  be  instituted 
*'  whenever  it  (the  corporation)  shall  exercise  any  franchise  or  privilege 
not  conferred  upon  it  by  law." 

Tbp  rftfll  ground  upon  which  the  defence  ofjultra  vires  rests,  and  the 
only  one  upon  which  it  has  ever,  to  any  extent,  hep.n  jndjr-Hly  ^flsv4r 

JsTthat    the    contracts    Of    corpora*'"^  whirOi  nrp  nnn.nf,hnrJ7nfl     hy  t.hf»ir_ 

charters  are  to  be  regarded  »<*  111pgn1;  nnd;  thrrrfnrr,  Yj?irf  There  are 
three  classes  of  illegal  contracts,  viz. ;  those  whinh  nr?  mfrffi  irt_£fff.f 
which  embrace  something  which  the  la^  fWmg  in  nnH  nf  jfrgplf  *»  i-iminqL. 
or  unmoral ;  za,  mose  which  violate  the  provisions  of  some  statute,  and 
are~h~en~ce  Called  mala  prohibita;  and,  3d.  those  which  contravene 
some  principleot  public  pnlinyT  Corporations  may  make  contracts 
falling  witnm  eitlier  of  the  two  first  of  these  classes,  and  such  contracts 
are  no  doubt  subject  to  the  same  rules  as  if  made  by  individuals.  Of 
course,  where  the  onlj*  objection  to  the  contract  of  a  corporation  is  that 
it  exceeds  the  corporate  powers,  it  cannot  be  considered  as  malum  in 
se  /  and  although,  in  this  State,  where  we  have  a  statute  (1  R.  S.,  600, 
§  3),  expressly  enacting  that  no  corporation  shall  exercise  any  corporate 
powers  except  such  as  their  charters  confer,  the  contrary  might,  with 
much  plausibility,  be  contended.  I  shall,  nevertheless,  concede,  for 
the  purposes  of  this  case,  that  such  contracts  do  not  belong  to  the  class 
styled  mala  prohibita, 

But  the  COntrnMa  of  rnrpnritJO"0  ™hifh  nrp  not,  nnt.hnrizpd  by  their 
charters  are  illegal,  becauafi-lbov  are  made  in  contra vciitteiLQL  public 
policy.  That  contracts  which  do  in  real  it}'  contravene  any  principle 
-xif  public1  policy  are  illegal  and  void,  is  not  and  cannot  be  denied.  The 
doctrine  is  universal.  There  is  no  exception.  Although  the  unau- 
thorized contract  may  be  neither  malum  in  se  nor  malum  prohibitum, 
but,  on  the  contrary,  may  be  for  some  benevolent  or  worthy  object,  as 
to  build  an  almshouse  or  a  college,  or  to  purchase  and  distribute  tracts 
or  books  of  instruction,  yet,  if  it  is  a  violation  of  public  policy  for 
corporations  to  exercise  powers  which  have  never  been  granted  to 
them,  such  contracts,  notwithstanding  their  praiseworthy  nature,  are 


540        BISSELL  V.    MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

illegal  and  void.  Those,  therefbre.who  hold  that  corporations  are 
liable  upon  their  contracts^  notwithstandingthey  were  made  without 
authority,  are  forced  to  contend  t.l^ft  no  principle  of  public^  policy  is 
violated  by  such  contractsT  Tbisis  tbe^giannd  which  they  do  take, 
andjwh"ich,  it  is  obvious,  they  must  necessarjly-take,  m^orjler  to  sustain 
their  position.  Here,  then,  we  have  an  issue  macj&jip,  whicli^if  I  am 
nglit,  isdecisive  of  the  question  under  consideration-. 
~~~WhaVthen,  is  the  argument,  by  which  it  is  sought  to  be  shown  that 
there  is  no  principle  of  public  policy  involved  in  this  question  of  the 
liability  of  corporations  for  their  unauthorized  acts?  It  is  said  that  a 
private  corporation  is  simply  a  chartered  partnership,  possessing  certain 
attributes  conferred  by  its  charter  for  the  purpose  of  enabling  it  tiie 
more  conveniently  to  transact  its  business  :  that,  even  in  unincorporated 
partnerships,  the  articles  of  copartnership  always  specify  the  objects  of 
the  association  ;  and  that,  when  such  associations  choose  to  become 
incorporated,  those  objects  are,  for  the  same  reason,  specified  in  the 
charter  :  that  the  charter  simply  takes  the  place  in  this  respect  of  the 
articles  of  agreement,  in  the  case  of  an  unincorporated  partnership  : 
that,  as  the  objects  of  such  associations,  although  incorporated,  are  of 
a  private  nature,  there  is  no  question  of  public  policy  involved  ;  and 
that  no  public  interest  requires  that  the  transactions  of  the  corporation 
should  be  kept  within  its  chartered  limits. 

If  we  admit  the  soundness  of  this  argument,  and  assume  that  the 
directors  of  a  corporation  are  not  under  any  public  obligation  to  keep 
within  their  chartered  powers,  but  are  to  be  regarded  simply  as  the 
agents  of  the  corporators,  so  that  any  excess  of  power  on  their  part 
amounts  simply  to  a  breach  of  trust  towards  their  principals,  it  would 
not  follow  that  the  corporation  is  liable  upon  its  unauthorized  contracts. 
But  I  apprehend  there  are  serious  objections  to  this  view  of  the  nature 
of  corporations,  and  of  the  effect  of  their  charters.  Xn^the  first  place, 
if  there  is  no  public  interest,  involved^  how  is  it  possible  to  justify  the 
_creatk)Tl  ol  pnvaUTcorporations  at  all?  Such  corporations,  ft 


tages_oyer  mere  private  citizens,  whether  individual  or  associated. 
ThlTgrant  of  such  privileges  upon  the  principles  for  which  some  of  my 
associates  contend,  would  be  a  pure  piece  of  legislative  favoritism, 
which  should  be  indignantly  condemned.  In  this  country,  if  in  no 
other,  it  is  held  to  be  the  duty  of  government  to  protect  the  people  in 
the  enjoyment  of  equal  rights  and  privileges,  and  not  to  use  its  power 
for  the  special  benefit  of  its  favorites.  Every  privilege  or  advantage 
given  to  one  man  or  set  of  men  is  necessarily  at  the  expense  of  others  ; 
and  it  is  against  the  fundamental  principles  of  our  government  that 
this  should  be  done,  unless  required  by  interests  of  a  public  nature. 
No  doubt  these  principles  are  frequently  violated,  and  corporate  powers 
and  privileges  are  conferred  which  no  public  interest  demands  ;  but, 
nevertheless,  such  interest  is  the  ostensible  reason  for  the  grant  in 
every  case.  • 


BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.        541 

Take,  for  instance,  the  very  class  of  corporations  in  question  here, 
viz.,  railroad  corporations,  which  are  mere  private  associations,  organ- 
ized by  their  members  with  a  view  to  their  personal  profit  and  emolu- 
ment ;  and  yet  their  creation  is  considered  somuch  a  matter  of  public 
interest  as  to  invoke  the  power  of  eminent  domain,  by  which  the 
property  necessary  for  their  purposps  is  fnrnihly  t.pken  from  its  owners 
as_for  a  public  use.  The  same  is  true  of  telegraph  and  plankroad 
incorporations.  But,  although  the  interest  of  the  public  in  the  creation 
of  corporations  of  this  class  is  made  a  little  more  obvious  by  the 
necessity  which  exists  of  taking  from  others  propert}-  which  is  specific 
and  tangible,  for  the  purposes  of  the  corporation,  yet  the  same  principle 
applies  to  all  corporations  ;  for  in  all  some  value,  corporeal  or  incor- 
poreal, is  taken  from  a  portion  of  the  community  and  given  to  the 
corporators. 

Will  it  be  said^tbak-  although  the 


ere  ation  of  coi'porations,  it  has  none_jn  the  prpni.^p  pytent  of  the 
powers  conterred,  and  that  no  public  policy  is  concerned  in  their  being 
strictly  connned  to  tne  exercise  of  such  powers?  It  is,  obviously,  im- 
possible to  support  such  a  position.  The  franchises  and  privileges 
given  to  corporations  belong  to  the  public  ;  and  it  would  be  just  as 
reasonable,  and  just  as  logical,  to  contend  that,  under  a  patent  for  one 
hundred  acres  of  land,  the  patentee  might  take  possession  of  two 
hundred  without  infringing  any  public  interest.  Every  additional 
power  given  to.  or  usurped  by.  a  corporation,  extends  its  advantages 
over  persons  unincorporated.  If  a  bank  is  permitted  td^  trade  in  mer- 
chandise, it  comes  in  competition  with  others  so  employed.  If  a  rail- 
road company  is  allowed  to  build  and  sail  ships,  it  comes  in  competition 
with  those  engaged  in  commerce  ;  and  so  of  every  other  branch  of 
business. 

The  importance  of  limiting  corporate  bodies  to  the  exercise  of  those 
powers,  and  the  enjoj'ment  of  those  privileges  and  franchises,  which 
have  been  specifically  conferred  upon  them,  must,  I  think,  be  obvious. 
They  are  rapidly  multiplying.  Their  privileges  give  them  decided 
advantages  over  mere  private,  unincorporated  partnerships.  '  TJiejt 
h  avelarggjcapitals  and  numerous  agents,  and  are  capable  of  enteri  n  g 
ifito  conThinfltionq  with  Qfnh  r>thor  They  are  not  only  formidable'  to 

individuals,    hlTt_mighf-.    P.VP.nT 


_ 

midahje"  1/TtheSla.tp.-  They  are,  or  should  be,  created,  as  we  have 
seen,  for  public  reasons  alone  ;  and  the  legislature  is  presumed,  in 
every  instance,  to  have  carefully  considered  the  public  interest,  and  to 
have  granted  just  so  much  power,  and  so  many  peculiar  privileges,  as 
those  interests  are  supposed  to  require.  This  reasoning  is  confirmed  by 

thp_g^tiion  nf  thp  WJBlfttnrfyin  pypressly  prr>Ml->itinpr  Corporations  Irohl 

exercising  any  po^rR  nn+-  nvo"Vr1  to  *hp™  (1  R.  S.,  600,  §  3,  supra.) 
By  making  this  pnn™'p1p  nf  fhp  ^r>mm^n  )aw  the  subject  of  an  express 
and  positive  pnfl.nt.mpnt,  t.hfi  Ipgislatiire  has  shown  that  it  considered 
this  restriction  upon  corporations  to  be  a  matter  of  public  interest  and 


542         BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

The  fact  that  a  mere  excess  ofpower  on  the  part  of  a  corporation, 
by  the  assumptioTTp^  pnvnpgpg  nTitpnnfprrprlj  nffprrlg  ground  for  a  quo 
warranto,  is  in  itself  proof  that  the  public  has  an  interest  in  keeping 
suchnSocties  wittiin  tihp  1iTT"fg  nf  th^ir  nliflrtovs_  But  it  is  said,  that  the 
proceeding  by  quo  warranto  is  of  a  purely  civil  nature,  designed  solely 
to  try  a  mere  civil  right,  and  that  it  in  no  manner  assumes  that  any 
public  right  or  interest  has  been  infringed.  Upon  this  position  I  take 
issue.  In  the  first  place,  the  assertion  derives  no  support  from,  if  it  is 
not  in  direct  conflict  with,  the  legislative  enactments  on  the  subject. 
Not  one  of  the  provisions  of  the  section  by  which  the  Attorne3"-General 
is  authorized  to  institute  proceedings  in  the  nature  of  a  quo  warranto, 
contemplates  injury  to  any  private  right  as  the  ground  of  the  proceed- 
ing. He  is  authorized  to  act  in  the  following  cases,  viz. :  Whenever  a 
corporation  shall  "  1st,  Offend  against  any  of  the  provisions  of  the  act 
or  acts  creating,  altering  or  renewing  such  corporation  ;  or,  2d,  Violate 
the  provisions  of  any  law,  by  which  such  corporation  shall  have  forfeited 
its  charter  by  misuser ;  or,  3d,  Whenever  it  shall  have  forfeited  its 
privileges  and  franchises  by  non-user ;  or,  4th,  Whenever  it  shall  have 
done  or  omitted  any  acts  which  amount  to  a  surrender  of  its  corporate 
rights,  privileges  and  franchises ;  or,  5th,  Whenever  it  shall  exercise 
any  franchise  or  privilege  not  conferred  upon  it  by  law."  (2  R.  S., 
583,  §  39.) 

Not  one  of  these  subdivisions  contemplates  a  case  of  injury  to  the 
private  Interests  ol  stockholders"  Tliey  all,  without  excyption,^ relate 
tcTviolations,  not  of  Individual-  rights,  but  of  public  law.  These  pro- 
visions, therefore,  strongly,  and,  as  I  think,  conclusively  repel  the 
idea,  that  a  quo  warranto  is  a  mere  civil  remedy,  the  object  of  which 
is  to  redress  or  prevent  a  private  injur}'.  The  proceeding  is  not  only 
public  and  quasi  criminal  in  form,  but  is  not  in  its  nature  adapted  to 
the  enforcement  of  any  mere  private  right.  The  rights  of  stockholders 
in  corporations  are  abundantly  protected  against  every  unauthorized 
assumption  of  power,  or  any  breach  of  trust  on  the  part  of  their 
managing  officers.  If  the  violation  of  duty  or  breach  of  trust  is  only 
threatened,  a  court  of  equity  will  prevent  it  by  injunction,  and  if  com- 
mitted will  afford  the  proper  redress.  There  is  neither  occasion  for, 
nor  propriety  in,  a  resort  to  the  proceedings  by  quo  warranto  for  any 
mere  private  purpose,  and  I  hazard  nothing  in  saying  that  such  is  not 
the  nature  of  that  proceeding.  If  this  conclusion  is  right,  it  inevitably 
follows  that  the  assumption  of  any  unauthorized  power  by  a  corporation 
is  a  violation  of  public  policy  and  public  right,  and  therefore  illegal. 

This,  then,  is  the  true  foundation  of  the  defence  we  are  considering. 
It  is  permitted  upon  the  same  principle  and  for  the  same  reason  that  a 
private  individual  is  permitted  to  plead  his  own  illegal  act,  as  a  defence 
to  a  suit  brought  to  enforce  a  contract  which  public  policy  forbids, 
viz.  :  to  discourage  and  restrain  such  violations  of  law.  There  are,  no 
doubt,  cases  in  which  a  corporation  would  be  estopped  from  setting  up 
this  defence,  although  its  contract  might  have  been  really  unauthorized. 


BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.        543 

It  would  not  be  available  in  a  suit  brought  b}*  a  bonajide  indorsee  of  a 
negotiable  promissory  note,  provided  the  corporation  was  authorized  to 
give  notes  for  any  purpose  ;  and  the  reason  is,  that  the  corporation,  by 
giving  the  note,  has  virtualh*  represented  that  it  was  given  for  some 
legitimate  purpose,  and  the  indorsee  could  not  be  presumed  to  know 
the  contrary.  The  note,  however,  if  given  by  a  corporation  absolutely 
prohibited  by  its  charter  from  giving  notes  at  all,  would  be  voidable 
not  only  in  the  hands  of  the  original  payee,  but  in  those  of  any  subse- 
quent holder ;  because  all  persons  dealing  with  a  corporation  are  bound 
to  take  notice  of  the  extent  of  its  chartered  powers. 

The  same  principle  is  applicable  to  contracts  not  negotiable.  Where 
the  want  of  power  is  apparent  upon  comparing  the  act  done  with  the 
terms  of  the  charter,  the  pp'^y  Baling  with  t.hp  nnrporafioii  lij 


to  have  knowledge  of  tllft  r^^W't    nnrt  th<«  flrfnuce.  of  ,^.<~  ........  10 

available  against  him.     But  such  a  defence  would  not  bp._permitted  to~ 
prevail    aualllisl  "a   p^r^y   whr>    ^nriot    ho    prfisnmprl    to    have    had    amr 
knowTc(I^e~bf  tlic_wjint  of  mitlmrity  to  imike_the  contract.     Hence,  if 
the  question  of  power  depends  not  merely  upon  the  law  under  which 
the  corporation  acts,  but  upon  the  existence  of  certain  extrinsic  factsX 
resting  peculiarly  within  the  knowledge  of  the  corporate  officers,  then  I 
the  corporation  would,  I  apprehend,  be  estopped  from  denying  that  / 
which,  by  assuming  to  make  the  contract,  it  had  virtually  affirmed.  \ 

A  question  analogous  to  this  arises,  where  public  officers  who  have 
done  something  in  contravention  of  the  statute  under  which  the}'  act, 
are  afterwards  sought  to  be  estopped  from  setting  up  that  their  act  was 
unauthorized.  It  was  insisted  by  counsel  in  the  case  of  Regina  v. 
White  (4  Ad.  &  EL,  N.  S.,  101),  that  for  public  reasons,  officers  so 
situated  were  not  estopped ;  but  Lord  DENMAN  said,  "We  have  held 
that  this  is  true  only  of  a  statute  the  contents  of  which  are  publicly 
known  ;  such  a  statute  is  to  have  effect  whatever  dealings  may  take 
place ;  but  when  the  persons  acting,  whether  trustees  for  public  pur- 
poses or  not,  have  done  an}-  act  which  was  not  known  to  the  parties 
with  whom  the}*  were  afterwards  dealing,  such  an  act  cannot  prevent 
the  estoppel  arising  from  that  subsequent  dealing."  This  doctrine, 
which  was  also  held  in  the  case  of  Doe,  ex  dem.  Levy  v.  Home  (3  Ad. 
&  EL,  N.  S.,  757),  will  be  found,  when  carefully  examined,  to  sustain 
the  exception  which  I  have  suggested  in  the  case  of  corporations. 
But,  aside  from  these  exceptional  cases,  it  is,  in  my  judgment,  not 
only  entirely  clear  upon  principle,  but  abundantl}"  settled  by  authority^ 
that  the  contract  of  a  corporation,  if  unauthorized  b}-  its  charter,  is  an 
illegal  contract,  and  that  the  corporation  is  not  estopped  from  setting 
up  this  illegality  in  defence  to  an  action  brought  upon  it 

In  referring  to  the  cases  which  support  these  views,  I  will  notice  the 
English  cases  first.  There  are  three  classes  of  cases  in  England  in 
which  the  question  of  ultra  vires  arises,  viz.  :  1st,  Cases  in  which  one 
or  more  of  the  shareholders  seeks  to  restrain  the  officers  of  the  corpora- 
tion from  engaging  in  transactions  unauthorized  by  the  charter.  2d, 


544        BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

Actions  brought  by  third  persons  against  corporations  to  enforce  their 
contracts,  in  which  the  defence  relied  upon  is,  that  in  making  the  con- 
tract the  corporation  exceeded  its  corporate  powers.  And  3d,  Similar 
actions,  in  which  the  defence  is  that  the  directors  had  exceeded,  not 
the  powers  conferred  upon  the  entire  corporation  by  law,  but  those 
conferred  by  the  shareholders  upon  the  directors  or  managing  officers 
by  deed. 

These  three  classes  of  cases  differ  material!}7  in  their  nature  and 
principles,  and  if  we  would  avoid  confusion,  must  be  kept  entirely 
distinct  in  investigating  the  subject.  Those  of  the  third  class  have  no 
bearing  upon  the  question  we  are  discussing.  There  are  in  England  a 
class  of  corporations  organized  under  general  laws,  which  do  not  specify 
the  manner  in  which  the  objects  and  purposes  of  the  incorporation  are 
to  be  effected,  but  leave  this  to  be  arranged  by  a  "  deed  of  settlement " 
between  the  corporators  themselves.  By  this  deed,  the  companies 
prescribe  and  limit  the  powers  and  functions  of  their  various  officers, 
so  far  as  they  are  left  uncontrolled  by  the  statute,  and  the  general  laws 
of  the  kingdom.  Now  it  is  plain,  that  there  is  no  analogy  between  an 
act  which  merely  transcends  the  limits  of  this  deed  of  settlement,  and 
one  which  violates  the  provisions  of  the  organic  act.  The  deed  of 
settlement  is  the  private  act  of  the  shareholders ;  and  its  provisions 
have  respect  solely  to  their  private  interests.  It  is  a  mere  power  of 
attorney,  and  bears  no  resemblance  to  a  law  enacted  with  a  view  to  the 
interests  of  the  public.  There  is  evidently  no  question  of  public  policy 
involved,  when  the  question  is,  whether  the  officers  have  exceeded  the 
authorit}T  conferred  by  this  deed.  The  case  of  the  Royal  British 
Bank  v.  Turquand  (5  El.  and  Bl.,  248),  is  one  of  this  class  of  cases. 
By  comparing  the  language  of  Lord  CAMPBELL  in  this  case  with  that 
used  b}-  him  upon  another  occasion,  we  shall  obtain  a  clear  view  of  the 
distinction  here  adverted  to.  In  the  case  cited,  the  action  was  upon  a 
bond  signed  by  two  of  the  directors,  and  the  question  was,  not  whether 
the  giving  of  the  bond  exceeded  the  powers  which  the  corporation  itself 
had  a  right  to  assume,  but  whether  it  was  authorized  as  between 
the  shareholders  and  the  directors  by  the  deed  of  settlement.  Lord 
CAMPBELL,  in  delivering  his  opinion,  said  :  "  A  mere  excess  of  authority 
by  the  directors  we  think  would  not  amount  to  a  defence."  Of  course 
by  this  was  meant  merely  an  excess  of  authority  by  the  directors  as  the 
agents  of  the  stockholders,  and  not  an  unauthorized  assumption  of 
power  as  between  the  corporation  and  the  public. 

In  the  Mayor  of  Norwich  v.  The  Norfolk  Railroad  Company  (30 
Eng.  Law  and  Eq.,  120),  the  same  learned  judge  fully  recognizes  the 
distinction  I  take,  and  shows  that  by  the  remark  just  quoted  he  by  no 
means  meant  to  saj',  that  corporations  were  bound  by  contracts  which 
are  ultra  vires,  as  between  them  and  the  public.  He  then  sa}-s  :  "  The 
mere  circumstance,  of  a  covenant  by  directors  in  the  name  of  the  com- 
pany being  ultra  vires  as  between  them  and  the  shareholders,  does  not 
necessarily  disentitle  the  covenantee  to  sue  upon  it.  ...  But  suppose 


BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.         545 

that  the  directors  of  a  railway  company  should  purchase  a  thousand 
gross  of  green  spectacles  as  a  speculation,  and  should  put  the  seal  of 
the  compan}-  to  a  deed  covenanting  to  pay  for  these  goods,  here  would 
be  a  clear  excess  of  authority  on  the  part  of  the  directors :  .  .  .  This 
would  be  an  illegal  contract  to  misapply  the  funds  of  the  company,  and 
the  illegality  might  be  set  up  as  a  defence." 

The  phrase  ultra  vires  is  applied  in  the  English  cases  both  to  acts 
which  simply  exceed  the  powers  conferred  by  the  deed  of  settlement 
upon  the  officers  as  the  agents  of  the  shareholders,  and  acts  which 
transcend  the  powers  conferred  by  law  upon  the  entire  corporation. 
This  indiscriminate  use  of  the  phrase  is  calculated  to  mislead,  unless 
the  distinction  referred  to  is  observed.  It  is  evident  that  the  class  of 
cases  to  which  that  of  JRoyal  British  Bank  v.  Turquand  belongs, 
have  no  bearing  upon  the  question  under  consideration,  and  hence  they 
will  be  no  further  noticed. 

In  all  the  cases  belonging  to  the  first  class,  the  object  of  the  action 
has  been,  to  protect  the  private  rights  of  the  shareholders ;  upon  the 
ground,  that  the  action  of  the  directors  sought  to  be7  restrained  would 
if  permitted  be  a  breach  of  trust.  It  would  no  doubt  be  a  bar  to  any 
relief  upon  this  ground,  if  it  appeared  that  the  parties  seeking  such 
relief,  had  themselves  assented  to  what  the  directors  were  about  to  do. 
The}-  clearly  could  not  be  entitled,  for  their  own  sake,  to  protection 
against  acts  which  they  had  themselves  authorized.  But  the  courts,  in 
cases  of  this  kind,  have  uniform!}',  and  no  doubt  property,  acted  upon 
the  presumption  that  the  shareholders  had  not  assented  to  a  violation 
of  the  charter,  and  have  interfered,  if  at  all,  for  the  purpose  of  protecting 
them  from  a  breach  of  trust  on  the  part  of  the  directors. 

Still  it  has  been  repeatedly  said,  even  in  cases  of  this  class,  that 
there  was  a  question  of  public  policy  involved  which  would  be  sufficient 
of  itself  to  induce  the  courts  to  interfere.  The.case  of  Coleman  v.  The 
Eastern  Counties  Railway  Company  (10  Beavan,  1),  decided  in  1846, 
was  one  of  this  class.  It  was  an  equity  suit  brought  by  a  shareholder 
in  behalf  of  himself  and  the  other  shareholders,  against  the  corporation 
and  its  directors,  to  prevent  the  latter  from  entering  into  a  certain 
agreement  with  the  Harwich  Steam  Packet  Company.  The  bill  prayed 
for  a  declaration  that  it  would  be  a  breach  of  trust  on  the  part  of  the 
directors  to  make  the  proposed  contract,  and  for  an  injunction.  Relief 
was  granted.  Lord  LANGDALE,  before  whom  the  case  was  heard, 
speaking  of  the  extensive  powers  of  railway  companies,  said :  ' '  We 
are  to  look  upon  their  powers  as  given  to  them  in  consideration  of  a 
benefit,  which,  notwithstanding  all  other  sacrifices,  is  on  the  whole 
hoped  to  be  attained  by  the  public."  Again,  he  says  :  "In  the  absence 
of  legal  decisions,  I  look  upon  the  acquiescence  of  shareholders,  in 
these  circumstances,  in  these  transactions  as  affording  no  ground  what- 
ever for  the  presumption  that  the}'  may  be,  in  themselves,  legal." 
Here,  then,  in  one  of  the  earliest  cases  on  the  subject,  in  the  English 
courts,  we  have  the  very  doctrine  for  which  I  contend,  distinctly  recog- 

35 


546         BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.  , 

nized  and  asserted,  viz. :  that  the  object  of  every  grant  of  corporate 
powers  is  to  obtain  a  public  benefit ;  and  that  the  powers  granted  are 
the  consideration  which  the  public  pays  for  the  benefit  received  or 
expected  ;  and  we  also  have  the  inevitable  consequence  stated,  that 
every  excess  of  power  by  the  corporation  is  illegal  although  acquiesced 
in  by  every  shareholder. 

\  Three  years  afterward  the  case  of  Cohen  v.  Wilkinson  (13  Jurist, 
641)  came  before  the  same  judge.  The  complainant  was  a  shareholder 
in  the  Direct  Portsmouth  Railway  Companj',  and  the  object  of  the  suit 
was  to  restrain  the  directors  from  proceeding  to  construct  a  portion  only 
of  the  road  authorized  by  the  charter,  without  any  preparation  or  inten- 
tion to  construct  the  whole.  The  judge  said:  ".If  it  were  established 
that  the  companies  of  this  sort  had  authorit}",  without  a  view  to  the 
whole,  or  for  the  purpose  of  performing  the  whole,  to  complete  such 
part  only  as  the}7  please,  or  are  able,  or  that  which  has  been  called 
their  contract  or  bargain  with  the  public,  I  think  the  consequences 
would  be  very  dangerous  to  the  public  and  to  the  shareholders,  and 
probably  productive  of  ver}T  extensive  deception  and  fraud."  In  a 
similar  case  which  arose  shortly  afterwards,  viz.,  /Solomons  v.  Laing 
(12  Beavan,  339),  Lord  LANGDALE  said:  "Any  application  of,  or 
dealing  with,  the  capital,  or  any  funds  or  money  of  the  companj*, 
which  may  come  under  the  control  or  management  of  the  directors, 
or  governing  body  of  the  company,  in  any  manner  not  distinctly 
authorized  by  the  act  of  Parliament,  is,  in  my  opinion,  an  illegal 
application  or  dealing." 

Thus  we  find  Lord  LANGDALE,  on  three  different  occasions,  asserting, 
in  controversies  between  the  shareholders  and  the  corporation,  that  all 
acts  and  dealings  of  the  officers  of  such  corporation  which  were  unau- 
thorized by  their  charters,  were  to  be  regarded,  not  simply  as  breaches 
of  ti'ust,  but  as  illegal  and  therefore  void.  But  Lord  LANGDALE  is  not 
the  only  English  judge  who  has  held,  in  cases  of  this  class,  that  the 
unauthorized  contracts  of  corporations  are  illegal  and  void,  as  against 
public  policy.  In  the  case  of  Beman  v.  Rufford  (6  Eng.  Law  and  Eq. 
R.,  106),  which  was  an  action  brought  by  a  shareholder  in  a  railwa}7 
company,  to  restrain  the  directors  from  carrying  into  effect  a  certain 
agreement  made  by  them,  Lord  CRANWORTH,  Vice-Chancellor,  after 
stating  his  reasons  for  thinking  the  contract  unauthorized,  said  :  "  And 
if  that  be  the  correct  view  of  the  law,  I  am  clearly  of  opinion,  on  all 
the  authorities  and  all  principle,  that  it  is  the  province  of  this  court  to 
prevent  such  an  illegal  contract  from  being  carried  into  effect ;  because, 
on  the  principle  that  has  been  so  often  laid  down,  this  court  will  not 
tolerate  that  parties  having  the  enormous  powers  which  those  railway 
companies  have  obtained,  shall  lay  out  one  farthing  of  the  funds,  out 
of  the  way  in  which  it  was  provided  by  the  legislature  that  the}7  should 
be  applied." 

Now  I  understand  those  who  differ  with  me  on  this  subject  to  concede 
the  principle  of  this  case :  that  is,  they  admit,  that  for  the  directors  to 


BISSELL  V.  MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.        547 
enter  into  a  contract  which  their  charter  does  not  authorize,  would  hp 


^a  violation  of  their  duty  to  the  shareholders,  and  that  the  latter 
apph'  to  a  court  of  equity  and  obtain  an  injunction  restraining  the 
directors  from  carrying  the  contract  into  effect.  It  would  be  difficult 
to  deny  this.  For  if  we  take  the  same  view  of  the  nature  of  a  corpora- 
tion which  they  take,  and  consider  the  directors  merely  as  the  agents 
of  the  shareholders,  and  the  charter  as  nothing  more  than  their  power 
of  attorney  from  the  corporators,  the  latter,  as  the  principals,  would 
have  a  right  to  repudiate  and  prevent  the  execution  of  a  contract,  made 
in  their  behalf  by  their  agents,  without  authority  ;  inasmuch  as  ever}* 
person  dealing  with  such  agents  must,  as  is  well  settled,  be  presumed 
to  know  the  extent  of  the  powers  which  the  charter  confers. 

The  position  then  occupied  by  some  of  my  associates  is  this  :  They 
admit  that  the  sharebgldfTfi  jn  n  pr>rpQvntir)n  have  a  right  to  restrauTnis"' 
directors  or  managers,  as  their  trustees  or  agents,  from  entering  into, 
a«y-roBlfact  not  authorized  by  the  charterer  from  carrying  such  con- 
tract  into  effect  if  made  ;  and  }jet  they  hold  tlmli  fhp 


not  in  their  individual,  but  their  comfliaie-cbfii-acttr,  to  the  pa**ji-Haih 
wh'om  the  contract  islnade  for  not  carrying  it  into  pffwtr  It  is  difficult 
t6~see~RowTHese  two  propositions  can  stand  together.  The  directors 
are  the  mere  representatives  of  the  corporators.  The  latter  constitute 
the  corporation.  Hence,  by  the  two  propositions  just  stated,  it  is 
maintained,  that  the  corporators  have  a  legal  right  to  enjoin  their 
representatives  against  the  performance  of  a  contract,  which  they 
themselves  are  legally  bound  to  perform  ;  in  other  words,  the}-  are 
liable  for  damages,  because  their  representatives  have  not  performed 
a  contract,  vvhli'h  they  had  a  right  to  restrain  those  representatives 
fcom^  performing.  'JL'tils  can  hardl}'  be!  It  would  seem  to  be  a  legal 
impossibilit}7.  One  or  the  other  of  these  propositions  must,  I  think,  be 
false.  Either  it  must  be  denied  that  the  shareholders  can  invoke  the 
aid  of  a  court  of  equity  to  prevent  the  performance  of  a  contract  entered 
into  by  the  directors,  which  the  charter  does  not  authorize  —  a  principle 
established  b}-  numerous  authorities  —  or  it  must  be  admitted  that  the}' 
are  not  liable  for  the  refusal  or  neglect  of  the  directors  to  perform  it. 
Tt.  yniffht  b,o  otherwise  if  it  could  be  shown  either  that  persona  dealing 
with  corporations  are  not  presumed  to  know  the  extent  of  the  ^pjDwers 
conferred  by  the  charter,  or  that  the  corporators  carfblT  presumed  to_ 
TTave  authorized  the  directors  to  transcend  those  powers.  But  the 
contrary  is  the  rule  in  respect  to  both. 

It  would  seem  to  follow  that  if  we  Took  upon  the  unauthorized  con- 
tracts of  corporate  officers  as  mere  breaches  of  trust,  and  nothing  more, 
the  corporation  is  not  bound  by  them.  This  however  is  not  the  ground 
upon  wlm-h.  I  have  been  endeavoring  to  maintain  that  corporations  are 
exempt  from  liability  upon  their  contracts  which  are  ultra  vires  ;  nor 
is  it  th"  ground  upon  which  such  defences  have  in  general  been 
sustained  in  suits  brought  b)'  third  persons  against  corporations  upon 
such  contracts.  I  shall  therefore  proceed  further  to  show  from  the 


548         BISSELL  V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

authorities  that  such  contracts  are  illegal  and  void  for  public  reasons, 
entirely  irrespective  of  the  fact  that  they  constitute  breaches  of  trust 
towards  the  shareholders. 

I  shall  cite  but  one  additional  case  belonging  to  the  first  of  the  above 
classes,  viz. :  Winch  v.  The  Birkenhead,  Lancashire  and  Cheshire 
Junction  Railroad  Company  (13  Eng.  Law  and  Eq.,  506.)  That 
was  a  suit  in  equity  brought  by  a  shareholder  to  restrain  the  corpora- 
tion from  entering  into  an  agreement,  which  amounted  to  a  lease  of  the 
defendants'  road  to  the  London  and  North  Western  Company.  The 
Vice-Chancellor,  Sir  J.  PARKER,  in  disposing  of  the  case  used  the 
following  language:  "It  seems  to  me  that  it  is  not  a  question  of 
simple  incapacity  on  the  part  of  the  London  and  North  Western  Rail- 
way Company  to  undertake  the  working  of  this  line,  but  that  it  is 
against  the  policy  of  these  acts  of  Parliament :  and  I  think  therefore 
that  the  agreement  for  making  over  this  property  to  them,  is  an  agree- 
ment savouring  of  illegality,  which  any  shareholder  in  the  Birkenhead 
Company  has  a  right  to  come  to  the  court  to  restrain." 

The  cases  thus  far  noticed  were  all  cases  between  the  shareholders 
and  the  directors  of  the  corporation^  in  which  of  course  the  question  as 
to  the  liability  of  the  corporation  to  third  persons  could  not  arise  ;  and 
they  have  been  referred  to  clnefly  tor  me  unitorm  dicta  they  contain, 
asserting  the  illegality  of  all  unauthorized  corporate  contracts.  I  shall 
now  refer  to  a  class  of  cases  in  which  the  question  of  the  liability  of  the 
corporation  upon  such  contracts  was  directly  involved. 

The  first  case  of  this  class,  to  which  1  will  call  attention,  is  that  of 
East  Anglian  Railway  Company  v.  Eastern  Counties  Railway  Com- 
pany (7  Eng.  Law  and  Eq.,  505).  That  was  a  suit  upon  a  contract 
made  by  the  directors,  and  the  defence  was,  that  the  contract  was  not 
warranted  by  the  charter;  and  the  court  so  held.  JERVIS,  Ch.  J., 
speaking  of  the  class  of  cases  to  which  I  have  previously  referred, 
says:  "The  cases  in  equity  which  have  been  cited,  proceeded  upon 
this  view  of  the  subject,  and  were  decided,  not  because  the  particular 
act  restrained  by  injunction  was  a  breach  of  trust,  but  because  it  was 
not  within  the  scope  of  the  directors'  authority,  was  not  justified  by  the 
statute  and  was  therefore  illegal"  Again  he  sa}Ts  :  "  If  the  contract 
is  illegal,  as  being  contrary  to  the  act  of  Parliament,  it  is  unnecessary 
to  consider  the  effect  of  dissenting  shareholders."  This  is  a  most 
explicit  and  emphatic  judicial  affirmation  of  the  precise  doctrine  for 
which  I  contend,  by  the  Court  of  Common  Pleas  in  England,  in  a  case 
in  which  there  was  no  dissent. 

The  same  doctrine  has  been  held  in  several  later  English  cases. 
Upon  an  application  in  The  Great  Northern  Railway  Company  v. 
Eastern  Counties  Railway  Company  (12  Eng.  Law  and  Eq.,  224), 
for  an  injunction  to  restrain  the  defendants  from  interfering,  contrary 
to  an  agreement  between  the  parties,  to  obstruct  the  plaintiffs  in  their 
use  of  a  part  of  the  defendants'  road,  which  was  opposed  on  the  ground 
that  the  agreement  was  ultra  vires,  the  Vice-Chancellor  said :  "  If, 


BISSELL   V.   MICHIGAN    SOUTHERN,   ETC.    RAILROAD   COS.         549 

therefore,  this  cause  had  rested  wholly  upou  the  construction  of  the 
agreement  between  the  plaintiffs  and  the  defendants,  I  should  have 
thought  it  the  duty  of  the  court  to  interfere  to  some  extent  by  injunc- 
tion ;  but  I  think  there  lies  at  the  root  of  this  case  a  question  of  public 
policy,  which  precludes  the  interference  of  the  court."  These  two 
cases  were  directly  upon  the  point ;  and  they  show  the  opinion  of  the 
Court  of  Common  Pleas  and  the  Court  of  Chancery. 

The  next  case  to  which  I  shall  refer,  viz. :  McGregor  v.  The  Official 
Manager  of  the  Deal  and  Dover  Railway  Company  (16  Eng.  Law 
and  Eq.,  180),  was  in  the  Court  of  Exchequer  Chamber.  It  was  an 
action  at  law  to  recover  damages  for  the  breach  of  a  contract ;  and  the 
defence  was,  that  the  contract  was  ultra  vires.  The  judgment  of  the 
court  was  delivered  by  Baron  ALDERSON,  who  said:  kt  The  Solicitor- 
General  argued  that  this  promise  of  the  defendant  was  in  truth  a 
promise  that  the  South  Eastern  Company  should  do  an  illegal  thing, 
and  that  the  promise  was  therefore  void  ;  and  we  are  of  that  opinion. 
This  is  not  like  the  promise  of  a  party  that  an  act  impossible  to  be 
done  shall  be  done  by  the  defendant,  or  by  some  third  person  ;  but  it  is 
a  promise  that  an  act  shall  be  done  contrary  to  the  public  laic  of  the 
country,  of  which  both  parties  are  bound  to  take  notice.  The  act  is 
therefore  illegal,  and  the  promise  that  it  should  be  done  is  a  void 
promise."  The  contract,  concerning  which  this  was  said,  was  illegal 
in  no  other  sense  than  that  it  was  ultra  vires. 

In  the  subsequent  case  of  South  Yorkshire  Raihcay  v.  Great 
Northern  Railway  Company,  in  the  Court  of  Exchequer  (9  Exch.  R., 
55),  where  the  questions  were,  1.  Whether  the  contract  upon  which 
the  suit  was  brought  was  authorized  ;  and,  2.  If  not,  whether  that 
constituted  a  defence  —  the  court  gave  judgment  for  the  plaintiff,  on 
the  ground  that  the  defendants,  in  entering  into  the  contract,  had  not 
exceeded  their  corporate  powers.  But  no  doubt  seems  to  have  been 
entertained,  that  the  contract,  if  ultra  vires,  would  have  been  void. 
Barons  MARTIN  and  PARKE  express^*  so  held ;  and  no  opinion  to  the 
contrary  was  intimated  bj"  the  other  judges.  It  is  true  that  Baron 
PARKE,  at  the  close  of  his  opinion,  says:  "  I  am  happy  to  find  that 
the  law  of  this  case  coincides  with  the  honesty  of  it,  and  does  not 
sanction  the  breach  b}'  the  defendants'  company  of  the  solemn  contract 
into  which  the}-  have  fairty  entered,  and  from  which  they  are  trying  to 
escape."  He  had,  however,  previously  laid  down  the  rule  as  follows : 
"  But  where  a  corporation  is  created  by  an  act  of  Parliament,  for  par- 
ticular purposes,  with  special  powers,  then,  indeed,  another  question 
arises.  Their  deed,  though  under  their  corporate  seal,  and  that  regu- 
larly affixed,  does  not  bind  them,  if  it  appear,  by  the  express  provisions 
of  the  statute  creating  the  corporation,  or  b}*  necessarj*  or  reasonable 
inference  from  its  enactments,  that  the  deed  was  ultra  vires" 

Sir  WILLIAM  ERLE,  one  of  the  justices  of  the  Queen's  Bench,  appears 
to  be  the  only  one  of  all  the  English  judges  who  ever  entertained  any 
serious  doubt  upon  this  question.  In  The  Mayor,  <&c.,  of  Norwich  v. 


550        BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS. 

The  Norfolk  Railway  Company  (30  Eng.  Law  and  Eq.,  120),  where 
the  question  arose,  he  combated  the  doctrine ;  contending  that,  in  all 
those  equity  cases  in  which  corporations  had  been  restrained,  at  the 
instance  of  the  shareholders,  from  entering  into  certain  engagements, 
the  court  had  proceeded  solely  upon  the  ground  that  the  contracts, 
if  made,  would  have  amounted  to  a  breach  of  trust ;  and  insisted 
that  the  contracts  of  corporations  were  only  void  at  law  when  ex- 
pressly prohibited.  But,  in  the  same  case,  Lord  CAMPBELL  and  Mr. 
Justice  COLERIDGE  expressed  their  entire  concurrence  in  the  previous 
decisions. 

The  question  was  finally  carried  to  the  House  of  Lords,  in  the  case 
of  Eastern  Counties  Railway  Company  v.  IfawJcs  (35  Eng.  Law 
and  Eq.,  8)  ;  and  although  the  contract  in  that  case  was  held  to  be 
within  the  powers  of  the  corporation,  and,  therefore,  binding,  it  was, 
nevertheless,  expressly  and  fully  conceded  that,  if  it  had  been  ultra 
vires,  it  would  have  been  illegal  and  void.  Lord  Chancellor  CRAN- 
WORTH,  after  citing  the  cases  of  The  East  Anglian  Railway  Company 
v.  The  Eastern  Counties  Railway  Company,  and  McGregor  v.  The 
Official  Manager  of  the  Deal  and  Dover  Railway  Company  (supra), 
said :  "  I  have  referred  to  those  cases,  and  there  are  others  to  the 
same  effect,  for  the  purpose  of  showing  how  firmly  the  law  on  this 
subject  is  established,  and  of  guarding  myself  against  being  supposed 
to  throw  any  doubt  upon  it.  But  I  do  not  think  the  present  case  comes 
within  the  principle  on  which  these  decisions  have  rested."  Lord 
CAMPBELL,  in  the  same  case,  also  fully  assents  to  the  doctrine ;  and 
yet  this  case  is  cited  and  relied  upon  to  support  the  views  of  those  of 
my  associates  who  differ  with  me  upon  this  question.  But  it  will  be 
found,  upon  examination,  that  even  Lord  ST.  LEONARDS,  upon  whose 
remarks  they  particularly  rely,  himself  concedes  the  rule.  He  said  : 
"The  opinions  of  some  of  the  judges  in  the  Norwich  case  (Mayor  of 
Norwich  v.  The  Norfolk  Railway  Company,  supra),  favor  the  dis- 
position which  I  feel  to  restrain  the  doctrine«of  ultra  vires  to  clear  cases 
of  excess  of  power,  with  the  knowledge  of  the  other  party,  express  or 
implied  from  the  nature  of  the  corporation  and  of  the  contract  entered 
into."  To  this  I  agree.  So  far  from  denying  the  principle  for  which 
I  contend,  it  concedes  it.  He  afterwards  says,  speaking  of  two  cases 
decided  by  the  House  of  Lords  at  the  same  session:  "  The}"  do  not 
authorize  directors  to  bind  their  companies  by  contracts  foreign  to  the 
purposes  for  which  the}7  were  established  ;  but  the}'  do  hold  companies 
bound  by  contracts  duly  entered  into  by  their  directors  for  purposes 
which  they  have  treated  as  within  the  objects  of  their  acts,  and  which 
cannot  clearly  be  shown  not  to  fall  within  them ;  and  they  further  hold 
companies  to  be  bound  by  a  continued  course  of  dealing  by  their 
directors  with  third  persons  in  relation  to  their  shares,  although  that 
mode  of  dealing  is  contrary  to  the  regulations  of  their  deed  of  manage- 
ment"  In  this  extract  the  judge  again  recognizes  the  doctrine,  but 
insists  that  it  should  be  made  clearly  to  appear  that  the  contract  is 


BISSELL   7;.   MICHIGAN   SOIJTHEKN,   ETC.   EAILEOAD   COS.        551 

ultra  vires  before  it  is  applied.  His  last  remark  evidentl}-  refers  to 
the  class  of  cases  already  noticed,  in  which  the  defence  is,  not  that  the 
directors,  in  making  the  contract,  exceeded  the  statutory  powers  of  the 
entire  corporation,  but  only  the  powers  conferred  by  the  deed  of  settle- 
ment. Those  cases,  as  we  have  seen,  have  no  bearing  upon  the 
question  under  discussion. 

This  review  of  the  cases  in  England  leaves  no  doubt  as  to  the  law 
upon  this  subject  there.  The  question  has  been  before  eveiy  judge 
and  every  court,  has  been  presented  in  even'  possible  form,  and  argued 
by  men  of  the  highest  talent,  and  the  result  has  been  uniformly  the 
same.  If  it  is  possible  to  settle  this  question  by  authoritj-,  this  must 
settle  it  at  least  in  that  country. 

I  shall  content  myself  with  a  brief  reference  to  the  American  cases, 
beginning  with  those  in  this  State.  The  question  was  directly  pre- 
sente'd  to,  and  decided  by,  the  Supreme  Court  in  the  case  of  Safford 
v.  Wyckoff  (1  Hill,  11).  /The  action  was  against  the  defendant,  as 
president  of  a  bank  organized  under  the  general  law  of  1838,  upon  a 
bill  of  exchange  or  draft  drawn  by  the  bank,  upon  the  North  American 
Trust  and  Banking  Company,  in  favor  of  one  Dodge  and  indorsed  to 
the  plaintiff.  It  was  held  in  this  case,  1st,  that  the  bank  had  no 
authority  to  issue  drafts  on  time;  and,  2d,  that  this  constituted  a 
good  defence  to  the  action.  This  case  was  prior  to  the  entire  series 
of  English  cases  to  which  I  have  referred,  and  }'et  our  court,  without 
any  of  the  light  thrown  upon  this  subject  b}'  those  cases,  placed  its 
decision  upon  grounds,  which  the  courts  at  Westminster,  after  the  most 
elaborate  discussion  and  examination,  have  full}'  confirmed.  The 
opinion  of  the  court  was  delivered  b}'  Mr.  Justice  COWEN,  who  saj-s : 
"  True,  there  is  no  nullifying  clause  in  the  statute  against  negotiable 
notes  and  bills,  in  whatever  wa}1  or  form  issued,  nor  an}'  positive  pro- 
hibition or  negative  against  them.  But  both  are  most  obviously  im- 
plied, not  only  in  the  general  frame  and  scope  of  the  statute,  but  more 
emphatically  in  its  polic}*."  In  this  sentence  the  judge  met  the  argu- 
ment that  a  contract  which  is  merely  unauthorized  but  not  prohibited 
is  not  illegal.  Another  argument  is  answered  b}-  the  following  remark  : 
"  We  admit  the  defence  is  an  ungracious  one,  both  as  to  Dodge  and 
tjaeTdrawers ;  it  is  not,  however,  for  their  sake,  but  for  that  of  the 
statute  and  the  public  that  we  feel  constrained  to  give  full  scope  To 
their  defence.  There  would  be  more  difficulty  in  sustaining  it,  as  to 
the  indorser,  were  it  not  to  be  regarded  as  an  obvious  attempt  by  all 
parties  to  violate  a  principle  of  public  policy." 

Here,  then,  in  limine,  we  have  the  doctrine  placed,  in  this  State, 
upon  grounds  which  subsequent  repeated  examinations  have  shown 
to  be  just.  It  is  true  that  this  case  was  reversed  by  the  late  Court  of 
Errors  (4  Hill,  442).  But  as  this  reversal  proceeded  upon  the  ground, 
that  the  bank  had  power  to  issue  the  draft,  it  in  no  manner  impairs  the 
authority  of  the  decision  of  the  Supreme  Court  upon  the  point  we  are 
considering.  Indeed  the  Court  of  Errors,  itself,  confirmed  the  doctrine 


552        BISSELL   V.    MICHIGAN   SOUTHERN,   ETC.   RAILKOAD   COS. 

in  the  subsequent  case  of  McCuUough  \.  Moss  (5  Denio,  567).  Of 
the  other  cases  in  this  State  I  will  only  notice  those  in  this  court,  the 
most  marked  of  which  is  the  case  of  Leavitt  v.  Palmer  (3  Coinst.,  19). 
This  was  an  important  case,  and  was  elaborately  argued.  The  suit 
was  brought  by  a  receiver  of  the  company,  and  its  object  was  to  cause 
to  be  set  aside  and  canceled,  forty-eight  promissory  notes  of  £1,000 
each,  issued  b}*  the  North  American  Trust  and  Banking  Company, 
upon  the  ground  that  they  had  been  issued  contrary  to  the  provisions 
of  the  act  of  May  14,  1840.  The  question,  therefore,  was  directly 
involved,  whether  a  corporation  can  avoid  its  own  contract  by  showing 
that  it  was  made  in  contravention  of  the  provisions  of  a  public  statute ; 
and  the  report  of  the  case  shows  that  this  question  was  distinctly  pre- 
sented and  argued  by  the  counsel.  It  was  held  unanimously  by  the 
court,  that  the  notes  having  been  issued  in  violation  of  the  act,  were 
illegal  and  void,  and  could  not  be  enforced  against  the  company. 

There  is  this  distinction  between  that  case  and  the  present :  There 
the  contract  which  the  compan}*  had  entered  into  was  express!}'  pro- 
hibited ;  here  it  is  prohibited  b}'  implication  merely.  But  the  case  to 
which  I  have  referred  shows  that  this  does  not  change  the  rule.  ^The 
decisions  in  those  cases  all  rest  upon  the  ground  that  the  contracts, 
being  within  the  implied  prohibition  of  the  statute,  were  void  as  made 
in  contravention  of  the  policy  or  tne  law^ 

""""Nosuch  distinction,  however,  exists  between  the  case  under  con- 
sideration, and  that  of  Talmage  v.  Pell  (3  Seld.,  328).  That  case 
involved  the  validity  of  three  several  contracts  of  the  North  American 
Trust  and  Banking  Company,  a  corporation  organized  under  the  general 
banking  law  of  this  State,  viz. :  1,  a  contract  to  purchase  a  large  amount 
of  State  stocks  of  the  State  of  Ohio  ;  2,  certain  certificates  of  deposit  or 
promissor}'  notes,  issued  by  the  company  in  pa3-ment  for  the  stocks ; 
and  3,  an  assignment  of  a  certain  bond  and  mortgage  as  security  for 
the  notes.  Neither  of  these  contracts  were  expressly  prohibited  by 
any  law.  The  only  objection  to  them  was  that  tney  were  not  authorized 
by  the  act  under  which  the  company  was  incorporated ;  and  this  court 
bold  the  nnnt.r.icts  to  be  illegal  and  void  upon  that  ground. 

These  cases  show,  that  in  this  State,  the  late  Supreme  Court  and 
Court  of  Errors,  and  this  court,  have  all  concurred  in  holding,  in 
accordance  with  the  numerous  English  cases  to  which  I  have  referred, 
that  the  contracts  of  corporations  which  are  ultra  vires,  are  void  and 
cannot  be  enforced.  Similar  decisions  have  been  made  by  the  courts 
of  other  States  and  of  the  United  States :  The  Pennsylvania  and 
Delaware  Canal  Company  v.  Dandridge  (8  Gill.  &  John.,  248)  ; 
Hood  v.  The  New  York  and  New  Haven  Railroad  Company  (22 
Conn.,  502)  ;  Elmore  v.  The  NaugatucJc  Railroad  Company  (23  id., 
457)  ;  Mutual  Savings,  &c.t  v.  The  Meriden  Agency  Company  (24 
id.,  159)  ;  The  NaugatucJc  Railroad  Company  v.  The  Waterbury 
Button  Company  (id.,  468)  ;  Bank  of  Michigan  v.  Niles  (1  Dong. 
Mich.  R.,  401)  ;  Orr  v.  Lacey  (2  id.,  254)  ;  Root  v.  Goddard  (3  McL., 


BISSELL  V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.        553 

102) ;  Hoot  v.  Wallace  (4  id.,  8)  ;  Dodge  v.  Woolsey  (18  How.  U.  S. 
R.,  331)  ;  Pearce  v.  Madison  and  Quincy  Railroad  Company,  and 
Peru  and  Quincy  Railroad  Company  (21  id.,  441).  I  shall  not 
consume  time  and  space  by  referring  to  these  cases  particular!}'.  If 
principles  can  ever  be  settled  by  authorit}-,  if  the  slightest  respect  is 
due  to  the  opinions  of  other  tribunals,  it  would  seem  that  no  court 
could  resist  the  overwhelming  weight  of  the  decisions  which  have  been 
cited. 

The  strength  of  the  opposing  views  consists  in  the  alleged  injustice 
of  permitting  a  corporation  to  avoid  obligations  by  pleading  its  own 
want  of  power  to  incur  them.  But  it  should  be  rememberorl,  thnt  this 
argumentjs  just  as  applicable  to  the  case  of  an  individual  who  sets  up 
the  illegality  of  his  own  contract,  and  thus  shields  himself  fiopi  respon- 
sibility upon  it,  as  to  that  of  a  corporation.  If  it  be  said,  that  in  the 
case  ot  illegal  contracts  between  individuals,  each  party  is  a  participator 
in  the  guilt,  and  hence  the  law  will  not  interpose  to  protect  either ;  this 
is  equally  true  in  respect  to  the  unauthorized  contracts  of  corporations. 
Their  powers  are  prescribed  by  statute,  and  every  one  who  deals  with 
thenT  is  presumed  to  know  the  extent  of  these  powers.  Wl]frp  fhfl  i 
circumstances  are  such  that  this  presumption  cannot  arise,  as  where 
th^want  of  power  is  not  apparent  upon  the  face  of  the  statute,  but 
depeiitts  upon  the  existence  of  some  extrinsic  fact  known  to  the  cor- 
p~oTation,  but  not  tne  party  Jfeulliiu  wllU  it,  it  hus  been  already  conceded 
that  the  corporation  would  be  estopped  from  setting  up  that  its  contract 
was  ultra  vires. 

But  tne  injustice  which  can  ever  accrue  to  individuals  from  permit- 
ting the  defence  in  question,  is  trifling,  under  the  law  as  now  settled, 
compared  with  the  importance  to  the  public  of  keeping  corporations 
within  their  chartered  limits.  It  lias  been  repeatedly  held  by  this 
court,  that  where  corporations,  by  means  of  contracts  or  engagements 
prohibited  03*  law,  i.  e.,  which  are  unauthorized  by  their  charters,  have 
obtained  from  other  persons  an}-  mone}1  or  other  thing  of  value,  while 
the,  con  tract  itself  is  void  and  can  never  be  enforced,  the  corpora- 
tion may  nevertheless  be  "compelled,  in  a  suit  brought  in  ctisafflrmance 
of  the  Contract  and  foundedupon  the  equities  of  the  case,  to  restore 
what  it  has  obtaJnecT This  rule  removes  from  corporations  all  tempta- 
tion  to  engage  in  Illegal  transactions  ;  and  while  it  tends  thus  to  promote 
the  public  policy  of  the  State,  it  at  the  same  time  protects  individuals 
from  any  gross  injustice. 

My  conclusion,  therefore,  is,  that  the  contract  of  the  defendants  to 
transport  the  plaintiffs  from  Chicago  to  Toledo  was  illegal  and  void, 
they  having,  as  we  have  seen,  no  power  under  their  charters  to  enter 
into  the  engagement  for  running  their  cars  on  joint  account  between 
those  two  places.  It  does  not  follow,  however,  that  they  are  not  liable 
to  the  plaintiff  in  this  action.  The  complaint  is  founded  upon  the  duty 
which  rested  npnn  thp  rlpjigndants,  growing  out  of  tlip  relation  in  whirh, 
they^stood  to  the  plaintiff,  to  take  care  that  be  should  not  be  injured 


554       -BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.    RAILROAD   COS. 

bvjheir  negligence.  If  this  duty  could  only  arise  out  of  some  contract 
Between  the  parties,  then  the  conclusion  arrived  at  would  be  fatal  to 
the  recovery.  The  contract  actually  made  by  the  defendants  to  trans- 
port the  plaintiff  can  form  no  part  of  the  plaintiffs  case,  and  he  must 
recover,  if  at  all,  irrespective  of  that  contract. 

It  is  said  that  if  the  contract  was  ultra  vires  and  the  corporation  is 
protected  from  all  responsibility  for  its  violation  on  that  ground,  it 
must  be  equally  free  from  responsibility  for  an  injury  inflicted  while 
attempting  to  perform  it.  But  this,  I  apprehend,  by  no  means  follows, 
though  it  is  probably  true  so  far  as  the  duty  to  observe  due  care  grew 
out  of  the  contract.  The  plaintiffs  claim,  however,  rests  not  upon  his 
contract,  but  upon  the  right  which  every  man  has  to  be  protected  from 
injury_through  the  carelessness  of  others.  It  has  the  same  legal  founda- 
tion as  that  of  one  who  has  been  injured  by  the  negligent  driving  of 
some  person  upon  the  public  highway,  or  who  has  been  run  over  by  a 
train  of  cars,  when  crossing  the  railroad  track.  The^  duty  to  observe 

^are    in  tllfifiP  ™<*™   nvir™  ,   nr.t  npnn    ony  nr>nft-ont|   hnf.    frntn    fha  r.hHopq- 

tion  which  rests  upon  all  persons,  whether  natural  or  artificial,  so 
to  conduct  as  not  through  thft^  n^gligonno  to  inflint  injury  upon 

othejs— 

It  is  unnecessary  to  cite  authorities  to  show  that  corporations  are 
liable  for  the  culpable  negligence  of  their  servants  or  agents  while 
engaged  in  the  business  of  the  corporation,  in  the  same  manner  as 
individuals  are  liable  for  the  negligence  of  themselves  or  their  servants. 
rt_wi11  Hqarp.p.ly  bf>  dnnhtpd  t.hnt.  if  t.ho  dpfondants*  oars,  through  the 
carelessness  of  their  employees,  had  run  over  the  plaintiff,  while  passing 
upon  a  highway  across  the  track  of  any  portion  of  the  road  used  by 
them,  the  corporation  would  have  been  liable.  They  could  not  set  up 
that  having  no  power  to  run  their  cars  beyond  the  limits  prescribed  by 

their  respective  Chnrfprgi  g11  optq  ^"tni'rln  nf  tlmnn  limits  mnnf  V>»  r-nrror/lnrl 

as  the  acts  of  the  individuals  performing  them,  and  not  of  the  corpora- 
tion. We  have  already  seen  that  norpm-nlions  mn.v  exceed  their  powers 

and    may   Perform    l]nn.nthovi'^o/1    0/^0,    nnrl    inm-im    r 


There  is  no  doubt  that  all  that  was  done  under  the  arrangement  between 


t.hg   dpfon.fja.ni.a,    Vnnnrl     hy   thP    rpfprnp,    nnqntVmri-Wl    and 

law,  is  nevertheless  to  be  treated  as  done  by  the  corporations  them- 
selves^ The  business  was  carried  on  under  the  direction  of  their 
managing  otricers,  with  their  property  nnri  for  thmr  Henentt  and  Jihay 
cannot  now  oe  heard  to  deny  that  it  was  done  by  them.  It  follows 
that  at  least  in  respect  to  all  persons  with  whom  they  had  no  conven- 
tional relations,  their  responsihilitipa  wrmiri  ho  prqdsolj'  the  samp.  n.s  if 
tfae^uslhess  in  which  they  were  engag-p^  was  lawful. 

To  test  the  liability  of  the  defendants,  therefore,  in  this  case,  it  is 
necessary  to  inquire  what  would  be  the  responsibility  of  railroad 
companies  in  general  towards  persons  sitting  in  their  cars,  but  whom 
they  have  made  no  contract  to  transport.  This  must  depend  upon  the 
circumstances  under  which  the  individuals  had  entered  the  cars.  If 


BISSELL  V.   MICHIGAN   SOUTHERN,   ETC.   RAILROAD   COS.        555 

they  were  there  as  mere  trespassers,  without  shadow  of  right,  the  com- 
pany would  not,  perhaps,  be  responsible  for  any  injury  they  might 
sustain,  through  the  negligence  of  its  servants.  But  if,  on  the  other 
hand,  the  entry  into  and  remaining  in  the  cars,  was  with  the  assent, 
express  or  implied,  or  tne  company,  and  injury  should  result  from  the 
negligence  Of  the  latter  or  ItsT  agents,  the  company  would,  I  think,  be 
"responsible.  It  was  held  b}'  this  court  in  the  case  of  Notion  v.  The 
Western  Railroad  Corporation  (15  N.  Y.,  444),  that  when  a  railroad^ 
nompany_yoluntarily  undertakes  to  carry  a  passenger  upon  t.hpir  maj^ 
altEoughwithout  compensation,  if  such  passenger  is  injured  by  the 
culpable  negligence  of  the  agents  of  tlie  company,  the  latter  isHa.bje.in 
the  absence  of  any_expressagreement  exempting  it.  The  pHnoipJe_of 
that  case  is  applicable  to  ting..  Although  here,  if  we  lay  aside  the 
contract,  there  was  no  undertaking  to  transport  the  plaintiff,  either 
with  or  without  compensation  ;  yet  this  can  make  no  difference,  as  the 
liability  in  such  cases  arises,  not  from  any  contract  express  or  implied, 
but  from  the  universal  obligation  of  all  persons  to  avoid  injury  to  others 
through  their  negligence. 

Suppose,  while  standing  upon  your  own  premises,  you  accidentally, 
but  through  sheer  carelessness,  discharge  a  gun  and  wound  a  person 
walking  upon  the  highway,  you  are  clearly  liable  for  the  injury.  If  the 
person  injured,  instead  of  being  upon  the  highway,  were  in  your  own 
house  with  3Tour  assent,  would  not  your  liability  be  the  same  ?  No  one 
can  doubt  it.  Suppose,  then,  instead  of  being  in  a  house  with  the 
owner's  assent,  the  individual  is  in  the  car  of  a  railroad  company  with 
the  consent  of  the  compan}',  would  he  not  have  the  same  right  to  im- 
munity from  injury  through  the  negligence  of  the  company  or  its  agents? 
This  is  self-evident.  The  company  might  not  be  liable  in  such  a  case 
for  the  careless  discharge  of  a  gun  by  one  of  its  servants,  because  using 
the  gun  would  be  no  part  of  the  servant's  duty  to  his  employers.  But 
if,  through  the  carelessness  of  the  engineer,  the  boiler  of  the  engine 
should  burst,  and  injury  should  ensue,  the  liability  of  the  company 
would  be  clear.  So,  if  the  injury  arose  from  a  collision,  running  off 
the  track,  or  any  such  cause. 

It  will  be  seen,  therefore,  that  the  question  of  responsibility  for 
injuries  sustained  from  negligence,  when  the  person  injured  is  within 
the  domain  or  upon  the  premises  of  the  party  guilty  of  the  negligence, 
turns  upon  the  inquin*  whether  he  is  there  lawfully  or  as  a  trespasser. 
It  is  true  that  when  the  negligence  occurs  in  the  course  of  the  perform-  \ 
ance  of  some  gratuitous  service  by  the  partj'  guilty  of  the  negligence,  I 
for  the  party  injured,  the  former  is  only  liable  for  gross  negligence ;    / 
but  no  question  on  this  subject  arises  in  the  present  case,  as  the  proof  { 
in  that  respect  will  be  presumed  to  have  been  such  as  to  support  the    ( 
judgment,  since  nothing  appears  to  the  contrar}-. 

Was  the  plaintiff,  then,  in  the  defendants'  cars  as  a  mere  trespasser, 
or  was  he  there  lawfull}*,  as  between  him  and  the  defendants.  To  this 
question  there  can  be  but  one  answer.  The  defendants  can  never 


556        BISSELL   V.   MICHIGAN   SOUTHERN,   ETC.   RAILEOAD   COS. 

allege  that  the  plaintiff  was  in  their  cars  as  a  trespasser,  when  he  was 
there  by  their  express  assent.  The  contract  between  him  and  the 
company,  it  is  true,  for  reasons  of  policy  could  not  be  enforced.  The 
defendants  might  at  any  time  have  repudiated  it,  and  required  the 
plaintiff  to  leave  the  cars ;  and  if  he  refused  might  thereafter  have 
treated  him  as  a  trespasser.  But  neither  his  entry  into  the  cars,  nor 
his  remaining  there  until  required  to  leave,  could  ever  be  regarded  by 
the  defendants  as  an  infringement  upon  their  legal  rights. 

It  may  be  said  that  the  plaintiff  by  consenting  to  travel  in  the  defend- 
ants' cars  became  a  participator  in  their  unlawful  conduct,  and  hence 
is  not  entitled  to  recover ;  but  for  this  position  there  is  not  a  shadow 
of  authority.  The  law  offended  against  by  entering  into  the  illegal 
contract  in  this  case,  is  a  law  of  restriction  upon  the  defendants  and~ 
jaot^upon  the  plaintiff.  The  implied  prohibitions  which  were  violated 
rested  solely  upon  them.  There  was  no  law  prohibiting  the  plaintiff 
from  traveling  in  their  cars.  I  have  already  adverted  to  the  rule  that 
where  the  illegality  of  the  contract  consists  in  the  violation  of  some 
law,  the  prohibitions  of  which  are  aimed  at  one  of  the  parties  only,  the 
other  party  is  to  be  treated  as  comparatively  innocent,  and  may  have 
relief  against  the  more  guilty  party  even  in  an  action  ex  contractu. 
If,  then,  he  is  entitled  to  enforce  a  mere  equity  against  the  other  party 
a  fortiori  may  he  claim  redress  for  injuries  consequent  upon  their 
tortious  acts.  He  is  so  far  regarded  as  particeps  criminis,  that  he 
forfeits  the  whole  benefit  of  his  contract.  He  could  not  recover  for  any 
failure  of  the  company  to  transport  him  in  due  time  or  to  transport  him 
at  all,  whatever  damages  he  might  thereby  sustain ;  but  he  cannot  be 
said,  like  an  outlawed  felon,  to  have  caput  lupinum  and  thus  to  be 
liable  to  be  knocked  on  the  head  like  a  wolf  or  to  have  his  limbs  broken 
with  impunity.  (4  Bl.  Com.,  320.)  Upon  these  grounds  I  think  the 
recovery  was  right,  and  that  the  judgment  should  be  affirmed. 

CLERKE,  J.,  delivered  an  opinion  for  affirmance  on  the  ground  last 
stated  by  SELDEN,  J.  DENIO,  J. ,  was  for  reversal ;  all  the  other  judges  1 
were  for  affirmance,  but  without  passing  upon  the  questions  discussed 
by  COMSTOCK,  Ch.  J.,  and  SELDEN,  J. 

Judgment  affirmed. 

1  The  other  judges  were  DAVIES,  J.,  WEIGHT,  J.,  BACON,  J.,  and  WELLES,  J.  —  ED. 


ASHBUKY   KAILWAY   CAREIAGE   AND   IRON   CO.   V.   RICHE.         557 


ASHBURY    RAILWAY   CARRIAGE    &   IRON  CO.   v.   RICHE. 

1875.     Law  Reports,  7  House  of  Lords,  653.1 

MR.  JOHN  ASHBURY  had  carried  on  at  two  places  in  Lancashire  a 
very  extensive  business  in  making  railway  carriages  and  waggons, 
turn-tables,  points,  crossings,  and  roofs,  and  other  things  of  a  like 
sort  needed  by  a  railway  company,  but  had  not  been  concerned  in  the 
construction  of  railwa3's  themselves. 

A  company  called  "  The  Ashbury  Railway  Carriage  &  Iron  Com- 
pany" incorporated  under  the  Companies  Act,  1862,  was  started  for 
the  purpose  of  buying  Mr.  John  Ashbury' 's  business,  and  among  the 
other  articles  in  the  agreement  for  its  purchase  was  this,  that  the  said 
John  Ashbury  shall  not  be  interested  (except  as  shareholder  in  a 
company)  in  "  the  business  of  a  railwaj'-carriage  maker,  iron  manu- 
facturer or  contractor,  or  any  other  business  or  branch  of  business 
theretofore  carried  on  by  him  at  the  said  works." 

A  Memorandum  of  Association  of  the  companj*,  dated  on  the  12th 
of  September,  1862,  was  drawn  up.  By  the  3rd  clause  of  this  memo- 
randum of  association  the  objects  of  the  compan}*  were  thus  defined : 
"The  objects  for  which  the  company  is  established  are  to  make  and 
sell,  or  lend  on  hire,  railwaj'-carriages  and  waggons,  and  all  kinds  of 
railway  plant,  fittings,  machiner}*,  and  rolling-stock ;  to  cany  on  the 
business  of  mechanical  engineers  and  general  contractors  ;  to  purchase 
and  sell,  as  merchants,  timber,  coal,  metals,  or  other  materials ;  and  to 
buy  and  sell  an}r  such  materials  on  commission,  or  as  agents." 

[Portions  of  the  Articles  of  Association  are  set  forth  in  the  case.] 

In  1864  Mr.  Riche,  the  Defendant  in  Error,  was  carrying  on  business 
in  Belgium,  in  partnership  with  his  brother  (since  deceased)  as  a  rail- 
way contractor.  On  the  14th  of  March,  1864,  the  Belgian  Government 
granted  to  certain  persons  named  Gillon  and  Bertsoen  a  provisional 
concession  for  making  a  line  of  railwa}*  from  Antwerp  to  Tournay,  the 
payment  of  two  sums  of  £4000  and  £16,000  being  settled  as  what  is 
called  "caution  money."  The  two  concessionaries  desired  a  company 
to  be  formed  to  cany  this  concession  into  effect.  It  was  agreed  that 
Messrs.  Riche  were  to  have  the  construction  of  the  line ;  and  in  the 
early  part  of  1865  the  two  concessionaries  and  Messrs.  Riche  and  the 
directors  of  the  Ashbury  Company  met  together,  and  agreed  to  form  a 
company  (Societe  Anonyme)  to  work  the  concession.  The  arrangement 
was  for  the  Ashbury  Company  to  purchase  the  concession  from  Messrs. 
Gillon  for  £70,000,  and  to  give  the  contract  for  its  construction  to 
Messrs.  Riche,  the_company  thus  becoming,  in  fact,  the  contractor  for 

1  Statement  abridged.  The  arguments  of  counsel  and  portions  of  the  opinion  of 
LORD  CAIRNS,  are  omitted.  The  concurring  opinions  of  LORDS  CIIELMSFORD, 
HATHERLEY,  O'HAGAN,  and  SELBORNK  are  omitted.  — ED. 


558         ASHBURY   RAILWAY   CARRIAGE   AND   IRON   CO.   V.   RICHE. 

the  construction  of  the  line.  In  this  negotiation  Mr.  James  Ashbury, 
one  of  the  directors  of  the  English  company,  represented  that  companj-, 
and  entered  into  the  contracts.  Sir  Cusack  Roney  afterwards  acted  in 
the  same  character. 

The  formation  of  a  societe  anonyme  in  .Belgium,  and  the  agreement 
with  Messrs.  Riche  that  they  should  construct  the  line  —  the  Ashbury 
company  undertaking  to  supply  the  societe  anonyme  with  the  requisite 
funds  —  was  said  to  have  been  adopted  because  the  rails,  &c.,  supplied 
by  a  Belgian  house  would  be  free  from  the  duty  that  the  Belgian  Gov- 
ernment imposed  on  rails  imported  from  England,  and  consequently 
the  profit  from  the  construction  of  the  line  would  be  increased. 
Messrs.  Riche  began  and  for  some  time  continued  the  works  for  the 
construction  of  the  line ;  and  for  some  time,  too,  the  Ashbury  directors 
paid,  in  the  name  of  their  company,  money  to  the  societe  anonyme  to 
which  Messrs.  Riche  had  become  entitled. 

Difficulties  about  payment  arose  as  the  work  went  on,  the  English 
shareholders  not  adopting  the  views  of  their  directors  as.  to  the 
speculation. 

[The  case  sets  forth  various  proceedings  at  meetings  of  stockholders  ; 
the  claim  being  made  by  plaintiffs  counsel  that  the  stockholders  of  the 
Ashbury  Company  had  ratified  the  contract  entered  into  in  the  name  of 
the  Com  pan}-.] 

i  The  Ashbury  Company  repudiated  the  contract  for  constructing  the 
line  as  one  ultra  vires.  Messrs.  Riche  brought  this  action  for  damages 
for  breach  of  contract.  The  case  was  referred  to  a  barrister  to  state  a 
special  case  ;  the  Court  to  be  at  liberty  to  draw  inferences  of  fact. 

The  case  setting  forth  the  above  matters  was  first  heard  before  the 
Court  of  Exchequer.  Two  judges  against  one  decided  that  the  verdict 
should  be  entered  for  the  plaintiffs,  the  Messrs.  Riche.  L.  R.  9  Exch. 
224.  The  case  was  then  taken  on  error  to  the  Exchequer  Chamber. 
The  judges  in  that  Court  being  equally  divided,  the  judgment  of  the 
Court  below  was  affirmed.  L.  R.  9  Exch.  249.  Error  was  then  brought 
to  the  House  of  Lords. 

Watkin  Williams,  Q.C.,  and  Cohen,  Q.C.,  for  the  plaintiffs  in  error 
(the  original  defendants). 

Giffard,  Q.C.,  and  Benjamin,  Q.C.  ( W.  G.  Harrison  with  them), 
for  defendants  in  error  (the  original  plaintiffs). 

LORD  CAIRNS,  LORD  CHANCELLOR. 

The  action  was  brought  by  the  Plaintiffs,  who  appear  to  be  con- 
tractors in  Belgium,  and  it  was  brought  for  damages  for  the  breach 
of  an  agreement  entered  into  between  the  Plaintiffs  and  the  sharehold- 
ers, constituting  the  Ashbury  Railway  Carriage  and  Iron  Company, 
Limited. 

These  persons  constituted  a  company  established  under  the  Joint 
Stock  Companies  Act  of  1862.  I  think  your  Lordships  will  find  it 
necessary  to  consider  with  some  minuteness  some  of  the  leading  pro- 


ASHBURY   RAILWAY  CARRIAGE   AND   IRON   CO.   V.   RICHE.        559 

visions  of  that  Act  of  Parliament.  But,  in  the  first  place,  you  will  find 
it  convenient  to  ascertain  the  purposes  for  which  this  compan}-  was 
formed,  and  then  the  nature  of  the  agreement,  or  contract,  for  the 
breach  of  which  the  present  action  was  brought. 

The  purposes  for  which  a  compan}*,  established  under  the  Act  of 
1862,  is  formed,  are  always  to  be  looked  for  in  the  Memorandum  of 
Association  of  the  company.  According  to  that  Memorandum,  the 
Ashbury  Railway  Carriage  and  Iron  Company,  Limited,  is  formed 
for  these  objects  —  "  to  make  and  sell,  or  lend  on  hire,  railway  carriages 
and  waggons,  and  all  kinds  of  railway  plant,  fittings,  machiner}1,  and 
rolling  stock ;  to  earn'  on  the  business  of  mechanical  engineers  and 
general  contractors ;  to  purchase,  lease,  work,  and  sell  mines,  minerals, 
land,  and  buildings  ;  to  purchase  and  sell,  as  merchants,  timber,  coal, 
metals,  or  other  materials,  and  to  buy  and  sell  any  such  materials  on 
commission  or  as  agents."  Part  of  the  argument  at  j^our  Lordships' 
Bar  was  as  to  the  meaning  of  two  of  the  words  used  in  this  part  of 
the  memorandum  —  the  words  "general  contractors."  My  Lords,  as  it 
appears  to  me,  upon  all  ordinary  principles  of  construction  those  words 
must  be  referred  to  the  part  of  the  sentence  which  immediately  pre- 
cedes them.  The  sentence  which  I  have  read  is  divided  into  four 
classes  of  works.  First,  "to  make  and  sell  or  lend  on  hire  railway 
carriages  and  waggons  and  all  kinds  of  railway  plant,  fittings,  machin- 
en*,  and  rolling  stock.  That  is  an  object  sui  generis  and  complete  in 
the  specification  which  I  have  read.  The  second  is  "to  carry  on  the 
business  of  mechanical  engineers  and  general  contractors."  That, 
again,  is  the  specification  of  an  object  complete  in  itself;  and,  accord- 
ing to  the  principles  of  construction,  the  term  "general  contractors" 
would  be  referred  to  that  which  goes  immediately  before,  and  would 
indicate  the  making  generall}'  of  contracts  connected  with  the  business 
of  mechanical  engineers  —  such  contracts  as  mechanical  engineers  are 
in  the  habit  of  making,  and  are  in  their  business  required,  or  find  it 
convenient,  to  make  for  the  purpose  of  carrying  on  their  business. 
The  third  is,  "  to  purchase,  lease,  work,  and  sell,  mines,  minerals,  land, 
and  buildings."  That  is  an  object  pointing  to  the  working  and  the 
acquiring  of  mineral  property,  and  the  generality  of  the  last  two  words, 
"  land  and  buildings,"  is  limited  by  the  purpose  for  which  land  and 
buildings  are  to  be  acquired,  namety,  the  leasing,  working,  and  selling, 
mines  and  minerals.  The  fourth  head  is,  "  to  purchase  and  sell,  as 
merchants,  timber,  coal,  metals,  or  other  materials,  and  to  buy  and  sell 
any  such  materials  on  commission  or  as  agents."  That  requires  no 
commentary. 

M}'  Lords,  if  the  term  "general  contractors"  were  not  to  be  inter-. 
preted  asj__nave  suggesiea,  the  conseqliehce  would  be  that  it  would 
stand  absolutely  without  any  limit  of  an}'  kind.  It  would  authorize 
tKe  making,  tnerefore,  of  contractsTof  any  and  every  description,  and^ 
the  memorandum  in  place  of  specifying  a  particular  kind  of  business 
would  virtually  point  to  the  carn-ing  on  of  business  of  any  kind 
whatever,  and  would  therefore  be  altogether  unmeaning. 


560        ASHBURY   RAILWAY  CARRIAGE   AXD   IRON   CO.   V.   RICHE. 

My  Lords,  that  being  the  object  for  which  the  com  pan}-  professes 
by  the  memorandum  of  association  to  be  incorporated,  I  now  turn  to 
examine  the  contract  upon  which  the  present  action  is  brought.  I 
may  relieve  }'our  Lordships  from  any  lengthened  exposition  of  the 
nature  of  that  contract  by  referring  you  to  the  account  given  of  it  by 
Mr.  Baron  Bramwell  in  the  Court  of  Exchequer,  which  appears  to  me 
accurately  to  describe  the  general  nature  of  the  contract.  Mr.  Baron 
JSramwell  states  this  : 1  "  The  substance  of  those  contracts  "  —  that  is, 
the  contract  upon  which  the  action  was  brought,  and  two  other  con- 
tracts, which  are  inseparably  connected  with  it — "The  substance  of 
those  contracts  was  this :  Gillon  and  Baertsoen  had  obtained  the  right 
to  make  a  railway  in  Belgium.  This  right  the  Defendants'  directors 
supposed  to  be  valuable  to  its  owners  ;  that  is  to  say,  the  line  could  be 
constructed  for -a  certain  sum,  and  a  societe  anonyme  could  be  con- 
stituted with  shareholders  to  take  its  shares  to  an  amount  which  would 
give  a  large  sum  over  the  cost  of  construction.  The  benefit  of  this 
the  directors  desired  to  obtain  for  the  Defendant  company,  and  to  do 
so  purchased  the  concession.  This  was  their  main  object.  But  the 
Plaintiffs  held  a  contract  with  the  concessionaries  to  construct  the  line, 
and  to  accomplish  the  directors'  object  it  was  necessary  or  desirable,  or 
the}-  thought  it  was,  that  they  should  agree  with  the  Plaintiffs  that  the 
Defendants  should  constitute  a  societe  anonyme,  and,  as  the  Plaintiffs 
went  on  with  the  work,  the  Defendants  should  pay  into  the  hands  of 
the  societe  proportionate  funds.  The  farther  contract  entered  into  in 
the  Defendants'  name,  called  D.,  is  of  no  importance  in  this  case. 
The  directors  accordingly  entered  into  two  contracts  in  the  Defendants' 
name  —  one  with  the  concessionaries  to  purchase  the  concession ;  the 
other  with  the  Plaintiffs  to  furnish  the  societe  anonyme  with  funds,  the 
latter  contract  being  auxiliary  to  the  former.  They  paid  the  conces- 
sionaries £26,000,  part  of  the  price.  Now,  whatever  may  be  the  mean- 
ing of  '  carry  on  the  business  of  mechanical  engineers  and  general 
contractors,'  to  my  mind  it  clearly  does  not  include  t.bo  mak^o-  of 
either  of  these  contracts.  It  could  only  be  held  to  do  so  by  holding 
that  the  "words  ( general  contractors '  authorized  generally  the  making 
of  any  contracts  ;  and  this  they  certainly  do  not." 

My  Lords,  I  agree  entirely,  both  with  the  description  given  here  by 
Mr.  Baron  Bramwell  of  the  nature  of  the  contract  and  with  the  con- 
clusion at  which  he  arrived,  that  a  contract  of  this  kind  was  not  within 
the  words  of  the  memorandum  of  association.  In  point  of  fact  it  was 
not  a  contract  in  which,  as  the  memorandum  of  association  implies,  the 
limited  company  were  to  be  the  employed,  they  were  the  employers. 
They  purchased  the  concession  of  a  railway  —  an  object  not-.  q.f,  all  within 
the  memorandum  of  association ;  and  having  purchased  that,  they 
employed,  or  they  contracted  to  pay,  as  persons  employing,  the  Plain- 
tiffs in  the  present  action,  as  the  persons  who  were  to  construct  it. 
That  was  reversing  entirely  the  whole  hypothesis  of  the  memorandum 

1  Law  Rep.  9  Ex.  234. 


ASHBUKY   RAILWAY   CARRIAGE   AND   IRON  CO.   v.   RICHE.        561 

of  association,  and  was  the  making  of  a  contract  not  included  within, 
but  foreign  to,  the  words  of  the  memorandum  of  association. 

Those  being  the  results  of  the  documents  to  which  I  have  referred, 
I  will  ask  your  Lordships  now  to  consider  the  effect  of  the  Act  of 
Parliament  —  the  Joint  /Stock  Companies  Act  of  1862  —  on  this  state 
of  things.  And  here,  my  Lords,  I  cannot  but  regret  that  b}*  the  two 
Judges  in  the  Court  of  Exchequer  the  accurate  and  precise  bearing  of 
that  Act  of  Parliament  upon  the  present  case  appears  to  me  to  have 
been  entirety  overlooked  or  misapprehended  :  and  that  in  the  Court  of 
Exchequer  Chamber,  speaking  of  the  opinion  of  those  learned  Judges 
who  thought  that  the  decision  of  the  Court  of  Exchequer  should  be 
maintained,  the  weight  which  was  given  to  the  provisions  of  this  Act 
of  Parliament  appears  to  me  to  have  entirety  fallen  short  of  that  which 
ought  to  have  been  given  to  it.  Your  Lordships  are  well  aware  that 
this  is  the  Act  which  put  upon  its  present  permanent  footing  the  regu- 
lation of  joint  stock  companies,  and  more  •  especially  of  those  joint 
stock  companies  which  were  to  be  authorized  to  trade  with  a  limit  to 
their  liability. 

The  provisions  under  which  that  system  of  limiting  liability  was 
inaugurated,  were  provisions  not  merely,  perhaps  T  mio-ht,  say  not 
mainly,  for  the  benefit  of  the  shareholders  for  the  time  being  in  thft. 
cSmpany,  Put  were  enactments  intended  also  to  provide  for  the  intej- 
ests  of  two  other  very  important,  hH;"c  ;  in  +hf*  firgt  pla™^  fhoaa  jyhn 
might  become  shareholders  in  succession  to  the  persons  who  were 
share  Polders  tor  tnc  tune  being  ;  and,  secondly,  the  outside  pnblin,  arid 


kmcT  And  I  will  ask  your  Lordships  to  observe,  as  I  refer  to  some  of 
"The  clauses,  the  marked  and  entire  difference  there  is  between  the  two 
documents  which  form  the  title  deeds  of  companies  of  this  description 
—  I  mean  the  Memorandum  of  Association  on  the  one  hand,  and  the 
Articles  of  Association  on  the  other  hand.  With  regard  to  the  memo- 
randum of  association,  your  Lordships  will  find,  as  has  often  already 
been  pointed  out,  although  it  appears  somewhat  to  have  been  over- 
looked in  the  present  case,  that  that  is,  as  it  were,  the  charter,  and 
defines  the  limitation  of  the  powers  of  a  company  to  be  established 
under  the  Act.  With  regard  to  the  articles  of  association,  those  ar- 
ticles play  a  part  subsidiary  to  the  memorandum  of  association.  They 
accept  the  memorandum  of  association  as  the  charter  of  incorporation 
of  the  company,  and  so  accepting  it,  the  articles  proceed  to  de- 
fine the  duties,  the  rights  and  the  powers  of  the  governing  bod}'  as 
between  themselves  and  the  company  at  large,  and  the  mode  and  form 
in  which  the  business  of  the  company  is  to  be  carried  on,  and  the 
mode  and  form  in  which  changes  in  the  internal  regulations  of  the 
company  may  from  time  to  time  be  made.  With  regard,  therefore, 
to  the  memorandum  of  association,  if  you  find  anything  which  goes 
beyond  that  memorandum,  or  is  not  warranted  by  it,  the  question  will 
arise  whether  that  which  is  so  done  is  ultra  vires,  not  only  of  the 

36 


562         ASHBURY   RAILWAY   CARRIAGE    AND   IRON   CO.    V.   RICHE. 

directors  of  the  company,  but  of  the  company  itself.  With  regard  to 
the  articles  of  association,  if  you  find  anything  which,  still  keeping 
within  the  memorandum  of  association,  is  a  violation  of  the  articles 
of  association,  or  in  excess  of  them,  the  question  will  arise  whether 
that  is  anything  more  than  an  act  extra  vires  the  directors,  but  intra 
vires  the  company. 

[Here  his  Lordship  quoted  and  commented  upon  various  clauses  of 
the  Companies  Act  of  1862.J 

The  memorandum  of  association  is,  as  it  were,  the  area  be}"ond 
which  the  action  of  the  company  cannot  go ;  inside  that  area  the  share- 
holders may  make  such  regulations  for  their  own  government  as  they 
think  fit. 

Now,  my  Lords,  bearing  in  mind  the  difference  which  I  have  just 
taken  the  liberty  of  pointing  out  to  your  Lordships  between  the 
memorandum  and  the  articles,  we  arrive  at  once  at  all  which  appears 
to  me  to  be  necessary  for  the  purpose  of  deciding  this  case.  I  have  used 
the  expressions  extra  vires  and  intra  vires.  I  prefer  either  expression 
very  much  to  one  which  occasionally  has  been  used  in  the  judgments  in 
the  present  case,  and  has  also  been  used  in  other  cases,  the  expression 
"illegality." 

In  a  case  such  as  that  which  your  Lordships  have  now  to  deal  with, 
it  is  not  a  question  whether  the  contract  sued  upon  involves  that  which 
is  malum  prohibition  or  malum  in  se,  or  is  a  contract  contrary  to 
public  policy,  and  illegal  in  itself.  I  assume  the  contract  in  itself  to  be 
perfectly  legal,  to  have  nothing  in  it  obnoxious  to  the  doctrine  involved 
in  the  expressions  which  I  have  used.  The  question  is  not  as  to  the 
legality  of  the  contract ;  the  question  is  as  to  the  competency  and  power 
(fffthe  company  to  make  the  ftnntrant.  Now,  I  am  clearly  of  opinion 
that  this  contract  was  entirely,  as  I  have  said,  beyond  the  objects  in 
the  memorandum  of  association.  If  so,  it  was  thereby  placed  beyond 
the  powers  of  the  company  to  make  the  contract.  If  so,  my  Lords,  it 
is  not  a  question  whether  the  contract  ever  was  ratified  or  was  not 
ratified.  If  it  was  a  contract  void  at  its  beginning,  it  was  void  because 
the  company  could  not  make  the  contract.  If  every  shareholder  of  the 
company  had  been  in  the  room,  and  ever}'  shareholder  of  the  company 
had  said,  "  That  is  a  contract  which  we  desire  to  make,  which  we 
authorize  the  directors  to  make,  to  which  we  sanction  the  placing  the 
seal  of  the  compan}-,"  the  case  would  not  have  stood  in  any  different 
position  from  that  in  which  it  stands  now.  The  shareholders  would 
thereby,  by  unanimous  consent,  have  been  attempting  to  do  the  very 
thing  which,  by  the  Act  of  Parliament,  they  were  prohibited  from  doing. 

But,  my  Lords,  if  the  shareholders  of  this  company  could  not  ab 
ante  have  authorized  a  contract  of  this  kind  to  be  made,  how  could 
they  subsequently  sanction  the  contract  after  it  had,  in  point  of  fact, 
been  made.  I  endeavoured  to  follow  as  accurately  as  I  could,  the  very 
able  argument  of  Mr.  Benjamin  at  your  Lordships'  Bar  on  this  point ; 


ASHBUKY   RAILWAY   CARRIAGE   AND   IRON   CO.   V.   RICHE.        563 

but  it  appeared  to  me  that  this  was  a  difficulty  with  which  he  was 
entirely  unable  to  grapple.  He  endeavoured  to  contend  that  when  the 
shareholders  had  found  that  something  had  been  done  by  the  directors 
which  ought  not  to  have  been  done,  they  might  be  authorized  to  make 
the  best  they  could  of  a  difficult}'  into  which  they  had  thus  been  thrown, 
and  therefrom  might  be  deemed  to  possess  power  to  sanction  the  con- 
tract being  proceeded  with.  My  Lords,  I  am  unable  to  adopt  that 
suggestion.  It  appears  to  me  that  it  would  be  perfectly  fatal  to  the 
whole  scheme  of  legislation  to  which  I  have  referred,  if  you  were  to 
hold  that,  in  the  first  place,  directors  might  do  that  which  even  the 
whole  company  could  not  do,  and  that  then,  the  shareholders  finding 
out  what  had  been  done,  could  sanction,  subsequently,  what  they  could 
not  antecedently  have  authorized. 

My  Lords,  if  this  be  the  proper  view  of  the  Act  of  Parliament,  it 
reconciles,  as  it  appears  to  me,  the  opinion  of  all  the  Judges  of  the 
Court  of  Exchequer  Chamber  ;  because  I  find  Mr.  Justice  Blackburn, 
whose  judgment  was  concurred  in  by  two  other  Judges  who  took  the 
same  view,  expressing  himself  thus  :  1  "  I  do  not  entertain  any  doubt 
that  if,  on  the  true  construction  of  a  statute  creating  a  corporation  it 
appears  to  be  the  intention  of  the  Legislature,  expressed  or  implied, 
that  the  corporation  shall  not  enter  into  a  particular  contract,  every 
Court,  whether  of  law  or  equity,  is  bound  to  treat  a  contract  entered 
into  contrary  to  the  enactment  as  illegal,  and  therefore  wholly  void, 
and  to  hold  that  a  contract  wholly  void  cannot  be  ratified."  My  Lords, 
that  sums  up  and  exhausts  the  whole  case.  -In  my  opinion,  beyond  all 
doubt,  on  the  true  construction  of  the  statute  of  1862,  creating  this 
corporation,  it  appears  that  it  was  the  intention  of  the  Legislature,  not 
implied,  but  actually  expressed,  that  the  corporation  should  not  enter, 
having  regard  to  its  memorandum  of  association,  into  a  contract  of  this 
description.  If  so,  according  to  the  words  of  Mr.  Justice  Blackburn, 
every  Court,  whether  of  law  or  of  equity,  is  bound  to  treat  that  contract, 
entered  into  contrary  to  the  enactment.  I  will  not  say  as  illegal,  but  as 
extra  vires,  and  wholly  null  and  void,  and  to  hold  also  that  a  contract^ 
void  cannot  be  ratified. 


My  Lords,  that  relieves  me,  and,  if  your  Lordships  agree  with  me, 
relieves  your  Lordships  from  an}-  question  with  regard  to  ratification. 
I  am  bound  to  say  that  if  ratification  had  to  be  considered  I  have  found 
in  this  case  no  evidence  which  to  my  mind  is  at  all  sufficient  to  prove 
ratification  ;  but  I  desire  to  say  that  I  do  not  wish  to  found  my  opin- 
ion on  an)7  question  of  ratification.  This  contract,  in  1113'  judgment, 
could  not  have  been  ratified  by  the  unanimous  assent  of  the  whole 
corporation. 

I  have  only  to  add  to  what  I  have  already  said,  that  I  observe  that 
some  cases  have  been  referred  to  here  —  those  arising  out  [of]  the 
Agriculturist  Cattle  Insurance  Company  in  3-0111*  Lordships'  House,9 

1  Law  Rep.  9  Ex.  262. 

2  Spademan  v.  Evans,  Law  Rep.  3  H.  L.  171;  Evans  v.  Smallcombe,  Ibid.  249; 
Houldsworth  v.  Evans,  Ibid.  263. 


564  DAVIS   V.   OLD   COLONY  K.   CO. 

and  the  case  of  the  Phosphate  of  Lime  Company  v.  Green,  in  the  Court 
of  Common  Pleas1  —  as  if  they  had  some  bearing  on  the  present  ques- 
tion. Those  cases  have  a  bearing  upon  some  of  the  observations  with 
which  I  have  troubled  3'our  Lordships.  They  are  cases  which  illustrate 
extremely  well  what  I  have  said  just  now,  that  the  articles  of  association 
of  a  company  of  this  kind  are  the  documents  which  define  the  power 
of  directors  as  between  themselves  and  the  company.  In  those  cases 
which  I  have  mentioned  the  whole  question  was,  whether  the  directors 
had  gone  be}"ond  the  powers  which  were  entrusted  to  them,  and  by 
which  their  authority  was  limited  under  the  articles  of  association,  or 
whether  that  which  had  been  agreed  to  had  been  duly  performed.  In 
no  one  of  those  cases  was  there  any  question  as  to  whether  the  power 
of  the  whole  company^  had  been  exceeded. 

Those  cases  have  no  application  whatever  to  the  present  case.  The 
present  case  stands  upon  the  power,  not  of  the  directors  alone,  but  of 
the  whole  company  as  settled  by  the  Act  of  Parliament. 

My  Lords,  for  the  reasons  which  I  have  thus  endeavoured  to  express, 
I  submit  to  3*our  Lordships  and  move  3-0111-  Lordships  that  the  judgment 
in  the  present  case  should  be  reversed,  and  judgment  entered  for  the 
Defendants. 


DAVIS   v.   OLD  COLONY  R.   CO. 
DAVIS   v.    SMITH  AMER.   ORGAN  CO. 

1881.     131  Mass.  258.2 

GRAY,  C.  J.  These  actions  are  brought  upon  an  agreement,  signed 
b}"  the  Old  Colon}'  Railroad  Compan}7  in  the  sum  of  $6000,  and  by 
the  Smith  American  Organ  Company  in  the  sum  of  $5000,  and  by  other 
corporations,  partnerships  and  individuals  in  various  sums,  amounting 
in  all  to  more  than  $200,000. 

The  agreement  is  in  these  words:  "  Boston,  January  23,  1872.  We 
the  undersigned  subscribers  hereby  agree,  each  with  the  other,  that  we 
will  contribute  towards  any  deficiency  (should  there  be  one)  that  may 
arise  towards  defraying  the  expenses  of  the  World's  Peace  Jubilee  and 
International  Musical  Festival,  to  be  held  in  Boston,  commencing  on 
the  17th  of  June  and  closing  on  the  4th  of  July  next,  in  such  propor- 
tions as  the  amounts  affixed  to  onr  several  names  bear  to  the  whole 
amount  subscribed :  provided  that  no  subscription  shall  be  binding 
until  the  whole  amount  subscribed  shall  reach  the  sum  of  two  hundred 

1  Law  Rep.  7  C.  P.  43. 

2  A  large  part  of  the  opinion  has  been  omitted.    The  omissions  consist  mostly 
of  statements  of  reported  cases  and  extracts  from  the  opinions  in  such  cases.  —  ED. 


DAVIS   V.   OLD   COLONY   R.    CO.  565 

thousand  dollars,  and  that  no  expenditure  be  incurred  except  under 
the  authorit}*  of  the  executive  committee,  which  committee  shall  repre- 
sent the  subscribers,  and  consist  of  ten  or  more  persons,  who  may 
be  chosen  by  the  first  six  subscribers  hereto." 

At  the  trial  of  the  first  action,  the  plaintiffs  offered  to  prove  that 
the  signature  of  each  corporation  was  made  b}-  authority  of  its  direc- 
tors, with  the  reasonable  belief  that  the  holding  of  the  festival  proposed 
would  be  of  great  pecuniary  benefit  to  the  corporation  b}'  increasing 
its  proper  business,  and  that  the  signature  would  promote  such  holding ; 
that  the  festival  was  held  as  mentioned  in  the  agreement  of  guaranty ; 
and  that  the  reasonable  expenditures  therefor,  made  under  authority 
of  the  plaintiffs,  who  relied  upon  that  agreement  in  making  them, 
exceeded  the  receipts  by  more  than  $200,000. 

The  only  point  argued  and  decided  when  one  of  these  cases  was 
before  us  upon  demurrer  to  the  declaration  was,  that  the  promise  of 
the  subscribers  was  to  the  executive  committee  therein  mentioned, 
and  that  these  plaintiffs  as  such  committee  were  the  proper  parties  to 
sue  thereon.  Davis  v.  Smith  American  Organ  Co.  117  Mass.  456. 

The  principal  question  now  presented  by  the  answer,  and  which  lies 
at  the  threshold  of  each  case,  is  whether  it  was  within  the  power  of  the 
defe»4ft»fr-cur{)OTaUoh  Lo  Dind  itself" by  such  an  agreement.  Upon  full 
consideration  of  the  elaborate  arguments  of  counsel  upon  that  question, 
the  court  is  of  opinion  that  the  agreement  is  ultra  vires,  and  therefore , 
no  acHoTruaii  be  maintained  upon  It  against,  euner  defendant. 

Tne  reported  cases  on  the  subject  are  so  numerous,  that  we  shall 
refer  to  comparatively  few  of  them,  except  the  principal  cases  in 
England  and  the  decisions  of  the  Supreme  Court  of  the  United  States 
and  of  this  court. 

A  corporation  has  power  to  do  annh  business  onty  as  it  is  authorized 
by  its  act  of  incorporation  to  do,  and  nontlmr—  Tr,  is  nor,  nplrl  nnr.  Ry 
the  government,  nor  by  the  stockholders,  as  authorized  to  make  con- 
tracts which  are  beyond  the  purposes  and  scope  of  its  charter.  It  is 
not  vested  with  all  the  capacities  of  a  natural  person,  or  of  an  ordinary- 
partnership,  but  with  such  only  as  its  charter  confers,  if  it  exceeds 
its  chartered  powers,  not  only  may  the  government  take  away  its 
charter,  but  those  who  have  subscribed  to  its  stock  may  avoid  any 
contract  made  by  the  corporation  in  clear  excess  of  its  powers.  If  it 
makes  a  contract  manifestly  bej'ond  the  powers  conferred  by  its  charter, 
and  therefore  unlawful,  a  court  of  chancery,  on  the  application  of  a 
stockholder,  will  restrain  the  corporation  from  carrying  out  the  con- 
tract ;  and  a  court  of  common  law  will  sustain  no  action  on  the  contract 
against  the  corporation. 

Every  person  who  enters  into  a  contract  with  a  corporation  is  bound 
at  his  peril  to  take  notice  of  the  legal  limits  of  its  capacity,  especially 
where,  as  in  this  Commonwealth,  all  acts  of  incorporation  are  deemed 
public  acts,  and  even'  corporation  organized  under  general  laws  is 
required  to  file  in  the  office  of  the  Secretary  of  the  Commonwealth  a 


566  DAVIS   V.   OLD   COLONY   K.   CO. 

certificate  showing  the  purpose  for  which  the  corporation  is  constituted. 
Gen.  Sts.  c.  3,  §  5.  St.  1870,  c.  224,  §§  7,  11.  Whittenton  Mills  v. 
Upton,  10  Gray,  582,  598.  Richardson  v.  Sibley,  11  Allen,  65,  72. 
Pearce  v.  Madison  &  Indianapolis  Railroad,  21  How.  441,  443.  East 
Anglian  Railways  v.  Eastern  Counties  Railway,  11  C.  B.  775,  811. 
Ashbury  Railway  Carriage  &  Iron  Co.  v.  Riche,  L.  R.  7  H.  L.  653. 

There  is  a  clear  distinction,  as  was  pointed  out  by  Mr.  Justice 
Campbell  in  Zabriskie  v.  Cleveland,  Columbus  &  Cincinnati  Railroad, 
23  flow.  381,  398,  by  Mr.  Justice  Hoar  in  Monument  Bank  v.  Globe 
Works,  101  Mass.  57,  58,  and  by  Lord  Chancellor  Cairns  and  Lord 
Hatherley  in  Ashbury  Railway  Carriage  &  Iron  Co.  v.  Riche,  L.  R.  7 
H.  L.  668,  684,  between  the  exercise  by  a  corporation  of  a  power  not 
conferred  upon  it,  varying  from  the  objects  of  its  creation  as  declared 
in  the  law  of  its  organization,  of  which  all  persons  dealing  with  it  are 
bound  to  take  notice  ;  and  the  abuse  of  a  general  power,  or  the  failure 
to  comply  with  prescribed  formalities  or  regulations,  in  a  particular 
instance,  when  such  abuse  or  failure  is  not  known  to  the  other 
contracting  party. 

[After  stating,  and  commenting  upon,  numerous  cases,  the  opinion 
proceeds  :] 

Several  of  the  cases  most  relied  on  by  the  plaintiffs  were  not  suits 
against  a  corporation  to  compel  it  to  pay  money  for  a  purpose  not 
within  the  scope  of  its  charter,  but  suits  by  a  corporation  to  recover 
iBone3*  or  property',  which,  when  recovered,  would  be  held  for  the  lawful 
uses  of  the  corporation.  Chester  Glass  Co.  v.  Dewey,  16  Mass.  94. 
Old  Colony  Railroad  v.  Evans,  6  Gray,  25.  National  Pemberton  Sank 
v.  Porter,  125  Mass.  333.  National  Bank'  v.  Matthews,  98  U.  S.  621. 

[After  stating,  and  commenting  upon,  these  cases,  the  opinion 
proceeds  :] 

A  corporation  may  indeed  be  bound  to  refund  to  a  person,  from 
whom  it  has  received  money  or  property  for  a  purpose  unauthorized  by 
its^cEarter,  the  value  of  that  whichit  -hin  nrfnilly  rrm'rod  •,  fnr,  in 
suchjt  case,  to  maintain  the  actionagainst  *nft  nm-pnrnt.jnn  is  not  to 
affirm,  but  to  disaffirm,  the  illegal  contract.  White  v.  Franklin  Bank, 
~2'2  Pick.  181.  Morville  v.  American  Tract  Society,  123  Mass.  129,  137. 
In  re  Cork  &  Youghal  Railway,  L.  R.  4  Ch.  748.  But  when  the  cor- 
poration hp«  n.r».t,ng1]y  rpfpived  nothing  in  money  or  property^,  nanndt 

hfr-twlrl  linhlp  npr>n  an  nxrrPPment  to  share  in,  or  fngnnranfpp  the  profits 

of,  an  enterprise  which  is  wholly  without  the  scope  of  ifcf  onrpnmtP. 
powers,  upon  the  mere  ground  that  conjectural  or  speculative  benefits 

n  ho    lilroly  tr>  rnniyl^  frf>m    the    making"  or 


the  agreement,  and  that  the  other  party  has  incurred  expenses  upon 
thp,  faith,  of  it.  E'tst  Anglian  Railways  v.  Eastern  Counties  Railway, 
Macgregor  v.  Dover  &  Deal  Railway,  Ashbury  Railway  Carriage  & 
Iron  Co.  v.  Riche  and  Thomas  v.  Railway  Co.,  above  cited.  Downing 
v.  Mt.  Washington  Road  Co.  40  N.  H.  230.  Franklin  Co.  v.  Lewis- 
ton  Institution  for  Savings,  68  Maine,  43. 


DAVIS   V.   OLD   COLONY   R.   CO.  567 

The  Old  Colony  Railroad  Company  is  a  railroad  corporation,  estab- 
lished  by  public  statutes  of  the  Commonwealth  for  the  purpose  of 
constructing  and  maintaining  a  railroad  and  carrying  passengers  and 
freight  thereon.     Sts.  1844,  c.  150  ;  1854,  c.  133  ;  1862,  c.  149  ;  1872, 
c.  143.     The  holding  of  a  "world's  peace  jubilee  and  international 
musical  festival "  is  an  enterprise  wholly  outside  the  objects  for  which 
a  railroad  corporation  is  established ;    and  a  contract  to  pay,  or  to 
guarantee  the  payment  of,  the  expenses  of  such  an  enterprise,  is  neither 
a  necessary  nor  an  appropriate  means  of  carrying  on  the  business  of 
the  railroad  corporation,  is  an  application  of  its  funds  to  an  object  un- 
authorized and  impliedly  prohibited  by  its  charter,  and  is  beyond  its 
corporate  powers.     Such  a  contract  cannot  be  held  to  bind  the  corpo-\ 
ration,  by  reason  of  the  supposed  benefit  which  it  ma}*  derive  from  an  X 
increase  of  passengers  over  its  road,  upon  any  grounds  that  would  not  / 
hold  it  equalh*  bound  b}'  a  contract  to  partake  in  or  to  guarantee  the   j 
success  of  any  enterprise  that  might  attract  population  or  travel  to  any   \ 
city  or  town  upon  or  near  its  line.     It  follows  that  in  the  first  of  the    n 
actions  before  us  there  must  be  Judgment  for  the  defendant. 

The  same   reasons   are  no  less   applicable  to  manufacturing  and 
trading  corporations,  established  under  general  laws,  and  the  purposes 
of  which  are  required  by  those  laws  to  be  stated  in  their  articles  of  as- 
sociation.    The  Smith  American  Organ  Compaq*  was  organized  under 
the  general  act  of  1870,  c.  224,  and  the  purposes  of  its  incorporation 
are  limited  by  its  articles  of  association,  as  appearing  in  the  certificate 
thereof  filed  in  the  office  of  the  Secretary  of  the  Commonwealth  pursu- 
ant to  that  act,  to  "  the  manufacture  and  sale  of  reed  organs  and  other 
musical  instruments."     The  power  to  manufacture  and  sell  goods  of  a  \ 
particular  description  does  not  include  the  power  to  partake  in,  or  to     J 
guarantee  the  profits  of,  an  enterprise  that  may  be  expected  to  increase     I 
the  use  of  or  the  demand  for  such  goods.      The  case  of  Ashbury    I 
Railway  Carriage  &  Iron  Co.  v.  Riche,  before  cited,  is  directly  in  / 
point. 

This  ground  being  decisive  of  the  second  action,  it  becomes  un- 
necessary to  consider  the  other  objections  to  its  maintenance,  and  the 
plaintiffs'  exceptions  must  be  Overruled. 

M.  F.  Dickinson,  Jr.  <&  J.  Fox,  for  the  plaintiffs. 

J.  H.  Benton,  Jr.,  for  the  defendant  in  the  first  case. 

JK.  D.  Smith,  (C.  Allen  with  him,)  for  the  other  defendant. 


568  DENVER   FIRE   INS.    CO.   V.   McCLELLAND. 


DENVER  FIRE  INS.    CO.  v.    McCLELLAND. 

1885.     9  Colorado,  II.1 

ACTION  by  McClelland  (plaintiff  below)  against  Insurance  Company. 

Plaintiff's  complaint  alleges  that,  on  June  12,  1882,  defendant  com- 
pany issued  a  policy  insuring  plaintiff's  growing  crops  against  loss  or 
damage  by  hail ;  that  this  policy  was  issued  in  consideration  of  $3.00 
cash  paid  by  plaintiff,  and  also  of  a  note  for  $58.03  executed  and  de- 
livered by  plaintiff  to  defendant;  and  that  on  June  19,  1882,  plaintiff's 
crops  were  damaged  b}T  hail. 

Defendants'  answer  set  up,  as  second  defence,  that  the  defendant 
company's  articles  of  incorporation  were  duly  recorded  in  two  public 
offices  long  before  the  issuing  of  said  policy ;  that  under  said  articles 
the  company  has  no  authority  to  insure  growing  crops  against  damage 
by  hail ;  and  is  authorized  to  insure  property  only  against  damage  by 
fire  or  lightning. 

The  plaintiff  demurred  to  this  second  defence.  The  demurrer  was 
sustained.  After  assessment  of  damages,  judgment  was  rendered  for 
plaintiff,  and  the  Insurance  Company  appealed. 

Stallcup,  Luthe  &  Shaffroth,  and  Teller  &  Orahood,  for  appellant. 

Norville  &  Clark,  and  T.  M,  Robinson,  for  appellee. 

STONE,  J.  The  sole  question  in  this  case  is  whether  the  appellant 
can  avail  itself  of  the  ultra  vires  of  the  contract  upon  which  its  liability, 
if  any,  arises  as  a  defense  to  the  action. 

[After  fully  stating  the  pleadings,  and  the  proceedings  in  the  case, 
the  learned  Judge  continues  as  follows  :  — ] 

The  authorities  cited  on  both  sides  of  the  case  are  very  numerous. 
Questions  touching  the  ultra  vires  of  corporations  have  been  before  the 
courts  of  probably  ever}'  state  in  some  shape,  and  various  phases  of 
the  question  have  been  many  times  considered  by  the  federal  courts, 
while  standard  text-books  are  full  of  research  and  discussion  upon  the 
entire  subject.  We  have  examined  these  authorities  with  care,  but  a 
review  of  them  here  would  be  unnecessary  labor,  since  both  the  Eng- 
lish and  American  authorities  have  been  collated  and  discussed  fully  in 
many  of  the  leading  cases  cited  by  counsel  in  their  briefs  filed  in  the 
case.  In  respect  to  the  precise  question  before  us,  there  is  apparently 
much  conflict  of  opinion  in  the  decisions  of  the  courts,  such  conflict 
being  in  man}-  cases  apparent  only,  but  in  others  squarely  antagonistic. 
It  is  quite  well  settled  as  a  general  rule  that  a  corporation  possesses 
only  such  lawful  powers  as  are  expressly  conferred  by  its  nharterf  antj_ 
such  as  are  clearly  incidental  or  impliedly  requisite  for  carrying  out  the 
declared  objects  and  purposes  of  its  creation. 

1  The  statement  in  the  opinion  is  abridged.  —  ED. 


DENVER   FIRE   INS.   CO.   V.   McCLELLAND.  569 

On  the  one  hand,  it  is  held  by  some  authorities  that  acts  of  a  corpo- 
ration in  excess  of  the  powers  limited  by  the  foregoing  rule  are  illegal, 
that  any  contract  made  in  such  excess  of  lawful  authority  is  void  and 
not  enforceable,  and  that  neither  party  to  an  action  founded  thereon  is 
^Stopped  to"plead  the  ultra  vires  of  the  contract  in  bar  of  such  action. 

On  the  other  hand,  it  has  come  to  be  the  settled  doctrine  of  sey^'-il^ 
states  that  a  corporation  may  De  estopperl  to  deny  its  authority  to, 
enter  into  a  contract  wbiflj  has  bffn  ercftfinted,  and  from  whinfa  it  has 
derived  the  benefit  which  it  thereby  sought.  There  seems  to  hp  a. 
growing  tendency  to  this  doctrine  in  mndprn  decisions  in  this  country 
and  it  is  also  supported  by  the  authority  of  English  cases. 

As  is  said  in  Parish  v.  Wheeler,  22  N.  Y.  494,  a  leading  case  upon 
this  subject  in  the  United  States  :  "  The  executed  dealings  of  corpora- 
tions must  be  allowed  to  stand  for  and  against  both  parties  where 
the  plainest  rules  of  good  faith  require." 

Mr.  Waterman,  in  his  late  excellent  treatise  upon  the  specific  per-  N 
formance  of  contracts,  says  that  it  is  now  settled  that  a  corporation    / 
cannot  avail  itself  of  the  defense  of  ultra  vires,  when  the  contract  has 
been  in  good  faith  fully  performed  by  the  other  party,  and  the  corpora-    \ 
tion  has  had  the  full  benefit  of  the  performance  and  of  the  contract.   / 
Sec.  226.     So  if  the  other  party  has  had  the  benefit  of  a  contract  fully  / 
performed  by  the  corporation,  he  will  not  be  heard  to  object  that  the  \ 
contract  and  performance  were  not  within  the  legitimate  powers  of  the  / 
corporation.  / 

In  the  case  before  us  the  contract,  as  made  by  the  parties,  appears 
to  have  been  full}*  executed  on  the  part  of  the  appellee,  so  far  as  his 
right  of  action  when  brought  was  affected  by  it.  He  had  paid  a  small 
portion  of  money  on  the  amount  of  the  premium  agreed  to  be  paid  and 
had  given  a  promissory  note  for  the  balance.  This  was  all  he  had 
agreed  to  do ;  all  that  had  been  exacted  of  him  by  the  insurance  corn- 
pan}*,  and  this  he  had  performed.  It  matters  not  that  the  note  had  not 
been  paid,  for  it  was  not  due  when  his  right  of  action  accrued  and 
when  he  brought  his  suit. 

It  is  not  contended  that  the  payment  of  the  note  was  a  condition  \ 
precedent  to  his  right  of  action  against  the  company,  since,  at  the  time   I 
of  bringing  the  action,  the  note  lacked  two  months  of  maturity,  and  ) 
there  was  nothing  to  be  done  or  performed  by  him  under  the  contract.  J 
The  performance  already  made  by  the  appellee  had  been  accepted  by 
the  appellant  company,  and,  so  far  as  it  was  concerned,  the  execution 
of  the  note  was  the  s.  ame  as  a  cash  payment  in  full  of  the  amount ;  the 
company  had  the  benefit  thereof.     It  is  argued  on  behalf  of  the  appel- 
lant that  the  courts  ought  in  all  such  cases  to  sustain  the  defense  of 
ultra  vires,  here  interposed,  on  the  ground  of  public  policy ;  that  the 
public  which  confers  the  corporate  powers  upon  such  companies  has  an 
interest  in  the  protection  of  innocent  stockholders  and  creditors  of 
such  companies  by  confining  the  exercise  of  corporate  powers  strictly 
within  their  authorized  limits,  and  this  is  given  in  the  books  as  the 


570  DENVEK   FIEE   INS.   CO.   V.   McGLELLAND. 

chief  reason  for  the  rule  of  decision  in  the  cases  which  sustain  the 
defence  of  ultra  vires. 

That  the  p"Kli"  hafl  °uch  an  interest  is  quite  true,  but  whether  to 
afford  such  protection  the  defense  of  ultra  vires  is  always  necessary  in 
such  cases  is  another  thing.  Stockholders  are  but  one  portion  of  the 
public;  another  portion,,  with  "equal  rights  of  protection,  is  tEatTwith 


these  multiform  corporation  a  rlotil  \n  thn  daily  0Tpv^fcp  of  their 
assumed  powers*-  And  it  seems  illogical  to  assume  that  the  interests 
of  the  public  would  be  besi  supserve'd  by  a  public  policy  which  will 
algyTa  corporation  T  any  more  than  an  individual,  to  violate  the  prin- 
ciples  of  common  honesty  and  claim  exemption  from  the  obligation  of 
its  contracts  by  pleading  its  own  wrong-doing.  Such  policy  would 
rather  seem  to  offer  a  premium  for  dishonest  dealing. 

Besides,  Dotn  me  state  which  grants  these  corporate  powers,  and 
the  stockholders  for  whose  benefit  such  powers  are  exercised,  have 
ttreh*  remedies,  the  former  by  interfering  to  revoke  the  charter,  and  the 
latter  by  an  action  to  restrain  the  unauthorized  undertakings.  While 
courts  are  inclined  to  maintain  with  vigor  the  limitations  of  corporate 
actions,  whenever  it  is  a  question  of  restraining  the  corporation  in 
advance  from  passing  beyond  the  boundaries  of  their  charters,  they  are 
equally  inclined,  on  the  other  hand,  to  enforce  against  them  contracts, 
though  ultra  vires,  of  which  they  have  received  the  benefit.  If  the 
other  party  proceeds  to  the  performance  of  the  contract,  expending 
his  money  and  labor  in  the  production  of  values,  which  the  corporation 
appropriates,  such  corporation  will  not  be  excused  on  the  plea  that  the 
contract  was  beyond  its  powers.  Bradley  v.  Bollard,  55  111.  413. 

Corporations  have  the  capacity  to  do  wrong,  and  ma}r  overstep  the 
limits  placed  by  the  law  to  their  powers,  and  when  they  violate  their 
charters  in  this  respect  their  acts  are  illegal,  but  not  necessarily  void. 
Bisselv.  Mich.  etc.  R.  It.  Co.  22  N.  Y.  258. 

The  plea  of  ultra  vires  is  not  to  be  understood  as  an  absolute  and 

peremptory  defense  in  all  cases  of  excess  of  power  without  regard  to 

other  circumstances  and  considerations.     The  plea  is  not  to  be  enter- 

tained where  its  allowance  will  do  great  wrong  to  innocent  third  per- 

l  sons.     Bissel  v.  Mich.  etc.  R.  R.  Co.  22  N.  Y.  258.     Where  a  certain 

I    act  is  prohibited  by  statute,  its  performance  is  to  be  held  void  because 

\  such  is  the  legislative  will.     So  where  the  consideration  of  a  contract  is 

b}T  law  illegal,  as  where  the  cause  of  action  arises  ex  turpe.    But  where 

the  act  is  not  wrong  per  se,  where  the  contract  is  for  a  lawful  purpose 

in  itself,  has  been  entered  into  with  good  faith,  and  fairly  executed  by 

the  party  who  seeks  to  enforce  it,  we  must  assent  to  the  doctrine  of 

those  authorities  which  hold  that  the  excess  of  the  corporate  powers  of 

the  contracting  party  which  has  received  the  benefit  of  the  contract 

/ia-an  unconscionablp-^fenap,  which  may  not  be  set  up  to  exempt  from 

/  liability  the  party  so  pleading  it.     And  such,  we  think,  is  the  case 

/  before  us. 

The  answer  of  the  insurance  company  does  not  deny  the  averment 


DENVER   FIRE   INS.   CO.   Vr  McCLELLAND.  571 

in  the  complaint  that  the  company  "  was  doing  business  in  Larimer 
county,  in  the  state  of  Colorado,  as  a  general  fire  and  hail  insurance 
company."  It  does  not  deny  that  it  entered  into  the  contract  of  insur- 
ance with  the  appellee  in  manner  and  form  as  alleged  in  said  complaint, 
nor  that  the  contract  was  executed  as  averred.  The  sole  defense  upon 
which  the  appellant  company  relies  here  is  its  want  of  authority  to 
insure  against  hail.  By  offering  to  insure  the  property  of  appellee 
against  damage  by  hail,  and  b}-  entering  into  the  contract  of  insurance 
therefor,  it  claimed  to  possess  the  power  so  to  do.  It  took  the  ap- 
pellee's mono}7  and  assumed  the  risk  and  obligation  of  paying  the 
damage,  much  or  little,  that  might  occur,  or  of  having  nothing  at  all  to 
pay,  if  the  contingency  of  damage  should  not  happen  within  the  time 
covered  by  the  policy. 

A  loss  having  occurred,  the  company  seeks  exemption  from  the 
obligation  it  entered  into  b}*  denying  that  it  had  an}-  authorit}'  to  do 
what  it^asserted  the  right  to  do  when  it  voluntarily  assumed  the  under- 
taking. 

We  are  aware  that  the  courts  have  been  very  slow  to  concede  that  a 
defendant  setting  up  as  a  defense  the  ultra  vires  of  a  contract,  where 
said  contract  was  clearly  not  authorized,  should  be  held  liable  on  the 
contract,  since  this  would  appear  to  sustain  the  enforcement  of  an  un- 
authorized contract,  and  therefore  the  cases  show  that  whenever  the 
courts  would  avoid  this  seeming  inconsistency  by  resting  the  recovery 
upon  some  other  ground  they  have  done  so.  This  has  often  led  to 
equal  inconsistency  in  other  directions.  The  true  ground  would  seem 
to  be  that  of  equitable  estoppel,  wherebv  the  defendant  is  not  per- 
jnitted  to  rely  upon  or  snow  the  inyajidity  nf  t.hfi  nnntrant..  In  such 
case,  the  contract  is  assumed  by  the  court  to  be  valid,  the  party  seek- 
ing to  avoid  it  not  being  permitted  to  attack  its  character  in  this 
respect. 

The  point  was  strongly  insisted  upon  by  counsel  for  appellant  in 
argument,  that  one  dealing  with  a  corporation  is  bound  to  know  the 
extent  of  its  powers  to  contract,  that  the  corporate  name  itself  indi- 
cates the  scope  of  its  business,  and  the  record  of  its  charter  or  articles 
of  incorporation  furnishes  notice  of  the  extent  and  limitation  of  its 
corporate  powers  and  authority  to  contract. 

While  as  a  general  proposition  this  is  true,  yet  it  must  be  conceded 
is  of  a  very  vague  and  shadowy  character. 


Ever}7  one  may  have  access  to  the  statutes  of  the  states  affecting  com- 
panies incorporated  thereunder,  and  to  their  articles  of  incorporation, 
but  to  impute  a  knowledge  of  the  probable  construction  the  courts 
wouldput  upon  these  statutes  and  articles  of  incorporation  to  deter; 
mine  questions  raised  upon  a  given  contract  proposed,  is  carrying  the 
doctrine  of  notice  to  an  extent  which  can  only  be  denominated  prepog- 
^tergua_  It  was  in  answeFto  the  same  point  that  Chief  Justice  Comstock 
observed,  in  his  opinion  in  a  leading  case  upon  this  question,  that  "  a 
traveler  from  New  York  to  Mississippi  can  hardly  be  required  to  fur- 


572  DENVER   FIREelNS.   CO.   V.   McCLELLAWD. 

nish  himself  with  the  charters  of  all  the  railroads  on  his  route,  or  to 
study  a  treatise  on  the  law  of  corporations."  Bissel  v.  M.  S.  &  N~.  I. 
H,.  R.  Co.  22  N.  Y.  258.  It  was  urged  in  argument  on  behalf  of  ap- 
pellant that  the  state,  which  created  these  corporations  for  public  good, 
has  such  an  interest  in  their  existence  and  perpetuit}*  that  public  policy 
should  be  interposed  to  keep  them  within  the  legitimate  exercise  of 
their  powers.  This  may  be  true  to  a  certain  extent,  and  the  state  may 
interpose  to  revoke  their  charters  for  an  abuse  thereof;  but  we  take  it 
that  it  is  no  more  the  public  policy  of  the  state  to  protect  the  business 
of  private  corporations  than  that  of  its  individual  citizens ;  and  to 
invoke  public  policy  in  a  case  like  the  one  at  bar,  in  order  to  prevent  a 
corporation  from  doing  wrong,  by  punishing  the  other  party,  would 
differ  little  from  asking  a  court,  on  the  ground  of  public  policy,  to  pre- 
vent the  obtaining  money  or  goods  through  false  pretenses  by  holding 
that  the  party  defrauded  should  be  punished  by  the  loss  of  his  money 

goods. 

While  such  wrong  may  be  prevented  by  interference  on  the  part  of 
the  state,  or  stockholders  of  the  company,  it  cannot  well  be  said  that 
to  cure  the  evil  it  is  necessary  in  every  case  to  exempt  the  company 
from  the  liability  of  its  unauthorized  engagements. 

The  principle  of  estoppel  by  conduct  is  the  same  principle  which  is 
applied  by  courts  in  holding  that  the  statute  of  frauds,  by  which,  under 
the  general  rule,  a  contract  would  be  void,  is  never  to  be  used  for  the 
protection  of  a  fraud. 

The  essential  elements  of  an  estoppel  by  conduct  are  laid  down  by 
this  court,  in  Griffith  v.  Wright,  6  Colo.  248,  to  be  that:  1.  There 
must  have  been  a  representation  or  concealment  of  material  facts. 
2.  The  representations  must  have  been  made  with  knowledge  of  the 
facts,  unless  the  party  representing  was  bound  to  know  them,  or  that 
ignorance  thereof  was  the  result  of  gross  negligence.  3.  The  party  to 
whom  it  was  made  must  have  been  ignorant  of  the  truth  of  the  matter. 
4.  It  must  have  been  made  with  the  intention  that  the  other  party 
should  act  upon  it ;  but  gross  and  culpable  negligence  on  the  part  of 
the  party  sought  to  be  estopped,  the  effect  of  which  is  to  make  a  fraud 
on  the  party  setting  up  the  estoppel,  supplies  the  place  of  intent.  5. 
The  other  party  must  have  been  induced  to  act  upon  it.  The  case 
before  us  seems  to  be  fairly  brought  within  the  foregoing  rules  and 
definitions.  The  insurance  company,  through  its  agent,  not  only  con- 
cealed the  want  of  authority  to  insure  against  hail,  which  it  now  sets 
up,  but  its  open  notorious  acts  in  soliciting  policies  of  this  character 
throughout  the  country  impliedly  held  out  and  represented  its  authority 
for  such  business. 

Such  agent  was  certainly  bound  to  know  the  extent  of  the  authority 
of  the  company  he  represented,  and  if  his  acts  in  the  premises  were  not 
done  with  full  knowledge  of  the  facts,  his  ignorance  in  this  respect  was 
gross  and  culpable  negligence. 

That  the  appellee  was  ignorant  of  the  truth  of  the  matter  of  want  of 


DENVER  FIRE   INS.   CO.   V.   McCLELLAND.  573 

authority  in  the  company  is  not  denied  by  the  appellant  company,  ex- 
cept b}r  an  inference  which,  it  is  argued,  is  to  be  drawn  that  the  articles 
of  incorporation  and  the  record  thereof  furnished  constructive  notice  of 
the  extent  of  authority  of  said  company.  But  it  seems  to  us  that  such 
an  inference  is  rebutted  by  the  presumption  fairly  arising  from  the 
nature  of  the  transaction,  that  the  appellee  would  not  have  paid  his 
money  for  the  performance  of  a  promise  which  he  knew  was  void  ;  that 
its  performance  could  not  be  enforced,  and  that  his  money  would  be 
utterly  thrown  away. 

That  the  offer  of  the  appellant  to  insure,  and  the  representations 
made  to  induce  the  appellee  to  enter  into  the  contract  of  insurance, 
were  made  with  the  intent  that  the  appellee  should  act  thereon,  is  self- 
evident  from  the  nature  of  the  transaction,  and  the  acceptance  by  the 
appellee  of  the  offer  so  made  by  the  appellant ;  and  that  the  appellee 
was  induced  to  act  upon  the  offer  and  representations  so  made  is 
equally  apparent,  for  the  act  was  an  obvious  sequence  of  the  induce- 
ment. 

It  was  strenuously  contended  by  counsel  for  appellant  in  the  oral 
argument  of  this  case  that  whether  the  contract  in  a  case  of  this  kind  is 
executed  or  not  is  immaterial ;  that  the  true  grounds  of  liability  depend 
upon,  and  should  be  placed  upon,  the  fact  of  whether  the  elements  of 
estoppel  exist ;  whether  the  conduct  of  one  party  has  been  such  as  that 
the  other  party  would  be  defrauded  or  injured  thereby  unless  the  con- 
tract should  be  enforced. 

However  this  may  be  in  respect  to  the  other  cases,  or  as  a  general 
rule,  we  are  quite  willing  to  assent  to  this  view  in  the  particular  case 
before  us,  and  to  rest  our  decision  upon  the  ground  of  estoppel  by  the 
conduct  of  the  appellant  company. 

We  do  not  sa}T  that  the  directors  or  acting  officers  of  such  company 
may  act  in  excess  of  their  legitimate  powers  against  the  interests  and 
contrary  to  the  will  of  the  stockholders  of  such  compan}",  but  while  ad- 
mitting the  excess  of  proper  authority,  we  think,  on  principle  and  the  \ 
weight  of  modern  decisions,  that  if  the  stockholders,  whose  business  it    \ 
is  to  see  that  their  own  managing  officers  act  within  the  proper  scope 
of  their  powers,  either  expressly,  or  by  silence   impliedly,  assent  to 
acts  done  on  their  behalf  in  excess  of  authority,  they  should  be  held 
estopped  to  deny  that  such  acts  were  authorized.  / 

The  appellant  company  here  offered  to  pay  back  the  money  and  / 
return  or  cancel  the  note  given  for  the  policy,  and  counsel  urgently 
contended  that  this  is  all  that  legally  can  or  rightfully  ought  to  be 
exacted.  This  would  not  place  the  appellee  in  statu  quo.  Every 
insurance  company  would  be  ready  and  willing  to  do  that  much  after 
the  loss  had  occurred,  on  condition  of  exemption  from  payment  of  the 
loss.  The  damage  to  appellee  is  the  loss  of  his  crops  against  which  the 
appellant  undertook  to  secure  him.  After  the  loss  it  was  too  late  for 
appellee  to  insure  in  another  company  having  unquestioned  authority 
to  insure  against  such  loss. 


574  DENVER  FIRE   INS.   CO.   V.   McCLELLAND. 

\Ve  therefore  conclude  that  since  the  contract  of  insurance,  though  it 
may  have  been  beyond  the  scope  of  the  proper  object  and  purposes  of 
the  company  as  expressed  and  conferred  by  their  articles  of  incorpora- 
tion, was  neither  by  statute  nor  by  their  charter  expressly  forbidden, 
nor  in  its  nature  illegal  or  improper,  and  since  the  conduct  of  the 
company  in  soliciting  the  insurance  and  entering  into  the  contract 
therefor  under  the  circumstances  disclosed  by  this  case  was  such  that 
to  exempt  it  from  its  engagements  thereunder  would  result  in  injuring 
and  defrauding  the  appellee,  who  in  good  faith  dealt  with  the  company 
under  the  belief  of  its  rightful  authority  in  the  premises,  the  defense  of 
the  appellant  company  interposed  against  its  liability  on  the  contract  is 
inequitable,  unconscionable,  and  should  not  be  allowed. 

It  is  admitted  that  a  contract  is  not  enforceable  when  prohibited  by 
statute ;  when  not  so  prohibited,  however,  and  when  not  illegal  or  im- 
moral in  its  nature,  nor  contrary  to  sound  public  policy,  a  contract, 
even  ultra  vires,  may  be  enforced,  when,  under  the  circumstances  of 
its  execution,  every  consideration  of  justice  requires  it.  This  is  the 
ground  of  decision  in  most  of  the  cases  relied  upon  by  the  appellee  in 
the  case. 

As  is  said  by  the  supreme  court  of  the  United  States  in  the  case  of 
Zabriskie  v.  CL,  Col.  <&  Gin.  R.  R.  Co.  et  al.  23  How.  400:  "A 
corporation,  quite  as  much  as  an  individual,  is  held  to  a  careful  adher- 
ence to  truth  in  their  dealings  with  mankind,  and  cannot,  by  their 
representations  or  silence,  involve  others  in  onerous  engagements, 
and  then  defeat  the  calculations  and  claim  their  own  conduct  has 
superinduced." 

Among  the  many  authorities  examined  in  support  of  our  views  in 
this  case,  we  cite  the  following:  "  Parish  v.  Wheeler,  22  N.  Y.  503  ; 
Bissell  v.  M.  S.  etc.  R.  R.  Co.  id.  258  ;  Bradley  v.  Ballard,  55  111. 
413  ;  Whitney  Arms  Co.  v.  Barlow,  63  N.  Y.  69  ;  Darst  v.  Gale,  83 
111.  141 ;  State  Rd  of  Agr.  v.  Citizens'1  Street  Ry.  Co.  47  Ind.  407; 
Oil  Cr.  etc.  R.  R.  Co.  v.  Pa.  Trans.  Co.  83  Pa.  St.  166  ;  Argenti  v. 
City  of  San  Francisco,  16  Cal.  255  ;  State  of  Ind.  v.  Woram,  6  Hill, 
37 ;  Converse  v.  Norwich  &  N.  Y.  Trans.  Co.  33  Conn.  180,  modify- 
ing the  doctrine  in  the  case  of  Hood  v.  N.  Y.  &  N.  H.  R.  R.  Co.  22 
Conn.  502  ;  Chicago  Build.  Soc.  v.  Crowell,  65  III.  453  ;  Ward  v. 
Johnson  et  al.  95  111.  215-240 ;  Zabriskie  v.  CL,  Col.  &  Cin.  R.  R. 
Co.  et  al.  23  How.  398-401  ;  Hitchcock  v.  Galveston,  96  U.  S.  341- 
351 ;  National  Bank  v.  Matthews,  98  id.  621 ;  Manville  v.  Belden  M. 
Co.  (McCrary,  J.  U.  S.  Cir.  Ct.)  3  Col.  Law,  558 ;  Green  Brice's  Ultra 
Vires,  371,  and  cases  cited;  Sedgwick's  Stat.  and  Const.  L.  90; 
Waterman's  Specific  Perf.  Cont.,  cited  supra. 

The  judgment  of  the  court  below  is  affirmed. 

Affirmed. 

BECK,  C.  J.,  and  HELM,  J. ,  concurring.  Private  corporations  are 
creatures  of  statute,  and  derive  their  powers  solely  therefrom.  Upon 


DENVER   FIRE   INS.   CO.   V.   McCLELLAND.  575 

weighty  considerations  of  public  policy,  and  of  private  equity  as  well, 
the  principle  has  been  universally  recognized  that  the  charters  or 
general  laws  through  which  these  corporations  derive  their  existence 
absolutely  control  their  action  ;  that  a  contract  made  or  an  act  done  by 
them  which  is  not  in  any  manner  authorized  by  some  express  provision 
of  the  charter  or  law  of  incorporation,  or  which  may  not  be  clearly  im- 
plied therefrom,  is  ultra  vires  ;  and  that  such  usurpation  of  power  may 
be  relied  upon  as  a  complete  defense  to  a  suit  growing  out  of  the  un- 
authorized act  or  contract. 

But,  for  the  purpose  of  avoiding  the  infliction  of  manifest  injustice 
in  given  cases,  many  courts  of  the  highest  respectability  have  seen  fit 
to  recognize  an  exception  to  the  foregoing  doctrine.  This  exception, 
when  admitted,  is  always  based  upon  principles  largely  analogous  to 
those  supporting  equitable  estoppels.  The  decisions  recognizing  it 
hold  that  where  a  corporation  receives  and  retains  the  full  benefit  of  a 
contract,  and  a  failure^tb  perform  on  its  side  would  result  in  palpable 
injustice  to  the  other  contracting  party,  it  is  estopped  from  escaping 
liaDinty  thereunder  tnrougn  a  piea  or  ultra  vire&. 

We  are  inclined  to  the  opinion  that  cases  sometimes  arise  wherein 
this  exception,  properly  understood  and  limited,  should  be  held  appli- 
cable. If  a  private  corporation  has  accepted  and  retained  the  full 
benefits  of  a  contract  which  it  had  no  power  to  make,  the  same  having 
been  performed  by  the  other  party  thereto ;  and  if  the  transaction  is  of 
such  a  nature  that  the  part}*  thus  performing  will  suffer  manifest  injus- 
tice and  hardship  unless  permitted  to  maintain  his  action  directly  upon 
the  contract,  no  other  adequate  relief  being  at  his  command,  we  think 
the  defense  of  ultra  vires  may  be  disallowed.  This,  however,  does  not 
do  away  with  the  objectionable  character  of  the  unauthorized  contract. 
It  admits  the  legal  wrong  committed  by  the  usurpation  of  power,  but 
denies  the  equitable  right  of  the  corporation  to  profit  through  siif;h 
wrong  at  the  expense  of  parties  contracting  with  it;  the  corporation, 
Having  received  and  retained  the  benefit  of  the  contract,  is  denied  the 
privilege  of  invoking  the  illegality  of  its  act,  and  thus  avoiding  conse- 
quences naturally  flowing  therefrom. 

The  circumstances  attending  and  surrounding  the  transaction  now 
before  us,  in  our  judgment,  render  this  an  appropriate  case  for  the 
application  of  the  foregoing  equitable  doctrine.  For  this  reason  we 
concur  in  the  conclusion  arrived  at  by  Mr.  Justice  Stone,  who  writes  the 
principal  opinion. 

Affirmed. 


576  RE   PHCENIX   LIFE   ASSURANCE   CO. 


SECTION  IX. 

Obligation  to  restore  what  was  Received  under  a  Contract  which 
has  subsequently  been  Repudiated  on  the  Ground  of  Ultra 
Vires. 

RE  PHCENIX  LIFE  ASSURANCE  COMPANY ;    BURGES 
&  STOCK'S   CASE. 

1882.     2  Johnson  $•  Hemming,  441. J 

THE  Phoenix  Life  Assurance  Company  was  formed  under  the  Joint 
Stock  Companies  Act  (7  &  8  Viet.  c.  110),  under  a  deed  of  settlement, 
dated  May  5,  1848,  in  which  the  business  of  the  company  was  stated 
to  be  life  assurance. 

In  1858,  the  company,  in  accordance  with  a  vote  at  a  general  meet- 
ing, commenced  insuring  marine  risks.  The  company  issued  policies  to 
Messrs.  Burges  &  Stock  on  various  vessels,  on  some  of  which  losses 
occurred. 

In  1860,  an  order  was  made  for  winding  up  the  company. 

Burges  &  Stock  undertook  to  prove  against  the  company  for  the 
amount  of  their  claims  on  marine  policies. 

Giffard,  Q.C.,  and  J.  Russell,  for  Burges  &  Stock. 

ITay,  for  the  creditors'  representative. 

Fry  (/Sir  H.  Cairns,  Q.C.,  with  him),  for  the  official  manager. 

SIR  W.  PAGE  WOOD,  VICE-CHANCELLOR.  [After  deciding  that  the 
claimants  would  not  be  allowed  to  prove  for  losses  upon  marine 
policies :]  * 

There  is  one  point  as  to  which  I  reserved  my  judgment,  viz.,  whether 
Messrs  Burges  and  Stock  are  entitled  to  prove  for  the  amount  of  the 
premiums  paid  by  them.  It  appears  from  the  proceedings  that  the 
total  amount  of  premiums  received  falls  far  short  of  the  total  paj'ments 
made  in  respect  of  the  marine  business,  but  this  cannot  affect  the  rights 
of  these  claimants.  They  have  had  no  consideration  for  the  premi- 
ums they  paid.  The  directors,  it  is  true,  had  no  power  to  issue  marine 
policies,  but  the}7  had  power  to  receive  mone}-,  and  apply  it  for  the 
benefit  of  the  compan}-.  It  is  proved  that  they  did  so  receive  and 
apply  these  premiums,  and  the  amount,  might  have  beon  recovered,  even 
al  law,  as  money  had  and  r<v-pivpf1.  T[JP  jjroof  must  therefore  be 
allowed  for  the  amount  of  the  premiums  paid. 

1  Statement  abridged.  Arguments  omitted.  Only  so  much  of  the  opinion  is  given 
as  relates  to  a  single  point.  —  ED. 


BAKONESS  WENLOCK   V.   RIVEK   DEE   CO.  577 


BARONESS  WENLOCK  v.   RIVER  DEE  CO. 

1887.     L.  R.  19  Qu.  B.  Div.  155.1 

APPLICATION  to  var}'  the  report  of  a  special  referee. 

The  facts  were  as  follows  :  — 

An  action  had  been  brought  by  the  plaintiffs,  as  executors  of  the 
late  Lord  Wenlock,  deceased,  to  recover  from  the  defendants  the 
amount  of  moneys  advanced  by  the  testator  to  them.  The  defence 
set  up  was  in  substance  that  the  mone3's  had  been  borrowed  b}T  the 
company  ultra  vires.  It  appeared  that  the  testator  had  advanced  large  • 
sums  of  mone}'  to  the  defendant  company.  He  had  also  paid  off  a 
previous  advance  of  56,OOOZ.  from  the  Rock  Insurance  Compan}-  to  the 
defendants,  taking  an  assignment  of  that  debt  and  a  fresh  covenant  for 
repayment  to  himself  by  the  defendants.  The  judge  at  the  trial  gave 
judgment  for  the  plaintiffs  for  the  full  amount  of  the  advances  by  the 
testator  to  the  defendants.  Upon  appeal  the  Court  of  Appeal  varied 
his  judgment,  and,  by  order  dated  May  9,  1883,  ordered  that  judgment 
should  be  entered  for  the  plaintiffs  for  the  amount  of  25,OOOL  (that 
sum  being  the  full  amount  which  the  company  bad  power  to  borrow) 
tmcl  interest,  and  also  that  in  addition  thereto  the  plaintiffs  should 
recover  judgment  for  so  much  and  so  much  only  of  the  sums  advanced 
as  was  employed  in  payment  of  any  debts  or  Imbilitips  of  f.hc  company 
properly  payable  by" them,  and  interest  from  the  respective  dates  of 
such  employment,  and  that  it  should  be  referred  to  a  special  referee  to 
inquire  as  to  and  report  the  amount  of  the  interest  payable  on  the  said 
sum  of  25,000?.  as  aforesaid,  and  the  amount  of  the  parts  of  the  said 
sums  so  employed  as  aforesaid  and  the  interest  thereon.  On  appeal  to 
the  House  of  Lords  they  affirmed  the  decision  of  the  Court  of  Appeal.2 
The  special  referee  held  an  inquiry  under  the  above  order,  upon 
which  inquiry  counsel  were  heard  and  witnesses  examined,  and  he 
thereupon  made  a  report.  The  plaintiffs  now  applied  to  the  Court  of 
Appeal  to  decide  certain  questions  of  law  raised  by  such  report  and  to 
vary  the  report  in  certain  respects,  and  there  was  a  cross  application 
to  vary  such  report  by  the  defendants.  Various  questions  arose  on  the 
report  with  regard  to  items  allowed  or  disallowed  by  the  referee,  which 
the  plaintiffs  claimed  to  have  allowed  under  the  order  of  May  9,  1883, 
but  which  the  defendants  contended  should  be  disallowed. 

The  questions  raised  were  briefly  as  follows  :  — 

In  addition  to  the  portions  of  the  moneys  advanced  which  had  been 
applied  to  the  payment  of  debts  or  liabilities  of  the  company  existing 
at  the  time  of  the  respective  advances  the  referee  allowed,  subject  to 
the  opinion  of  the  Court,  items  in  respect  of  portions  of  the  moneys 

1  Statement  abridged.    Portions  of  arguments  and  opinion  omitted.  —  UD. 

2  10  App.  Cas.  354. 

37 


578  BARONESS   WENLOCK   V.   RIVER   DEE   CO. 

advanced  which  had  been  applied  in  payment  of  debts  and  liabilities  of 
the  company  which  arose  subsequently  to  the  respective  advances, 
whereas  the  defendants'  contended  that  he  should  have  disallowed  such 
items  and  allowed  only  items  in  respect  of  moneys  advanced  which  had 
been  applied  in  payment  of  debts  and  liabilities  existing  at  the  date  of 
the  advances. 

[Omitting  certain  questions.] 

The  plaintiffs  further  claimed  to  be  allowed  under  the  order,  in 
addition  to  the  25,OOOJ.  for  which  they  had  judgment  as  being  validly 
borrowed,  the  amount  of  all  debts  and  liabilities  of  the  company  paid 
out  of  that  sum  of  25,OOOZ. 

[After  a  preliminary  objection  to  the  application  had  been  argued 
and  disallowed,  the  main  questions  were  argued.] 

Jligby,  Q.C.,  and  H.  0.  IB.  Lane,  for  the  plaintiffs.  The  terms  of  the 
order  of  May  9,  1883,  include  all  debts  or  liabilities  of  the  company 
paid  out  of  the  advances  of  the  plaintiffs'  testator  whether  existing  at 
the  date  of  the  advances  or  not.  The  doctrine  of  equity  by  which  the 
lender  or  quasi-lender  of  money  borrowed  by  a  company  ultra  vires  is 
subrogated  to  the  rights  of  a  creditor  of  the  company  whose  debt  has 
been  paid  off  out  of  the  money  so  borrowed  is  not  confined  to  cases 
where  the  debt  was  in  existence  at  the  time  of  the  advance,  but  applies 
to  all  debts  and  liabilities  of  the  companj"  paid  off  out  of  the  money  so 
borrowed  whether  accruing  before  or  after  the  advance.  The  principle 
upon  which  this  equity  depends  is  discussed  in  the  case  of  Blackburn 
Building  Society  v.  Cimliffe,  Brooks  &  Co.,1  and  in  the  judgments  in 
that  case  there  is  no  trace  of  the  limitation  of  the  doctrine  suggested 
by  the  defendants.  If  the  company  have  had  the  benefit  of  the  money 
so  advanced  by  its  application  to  debts  or  liabilities  validty  incurred  by 
the  company  and  which  they  were  bound  to  meet,  the  person  who  has 
advanced  the  money  is  then  subrogated  to  the  rights  of  the  creditors  so 
pai8  off.  The  principle  is  that  equity  will  follow  the  money,  which  re- 
mains in  equity  the  property  of  the  quasi-lender,  and  wherever  it  can 
find  any  security  or  piece  of  property  representing  the  mone}',  the 
quasi-lender  is  entitled  thereto  :  and  therefore,  so  far  as  the  money  has 
been  applied  for  the  benefit  of  the  compan}',  it  is  to  be  treated  in 
equity  as  existing  in  the  coffers  of  the  compan}7  and  must  be  repaid,  not 
as  money  borrowed,  but  as  mone}'  which  still  belongs  in  equitj*  to  the 
lender.  The  test  is  whether  the  transaction  has  added  to  the  liabilities 
of  the  compan}-,  and,  so  far  as  the  advance  has  been  applied  to  debts 
or  liabilities  which  the  compan}*  has  validh7  incurred,  whether  before  or 
after  the  advance,  the  companj-'s  liability  is  not  increased. 

[Remainder  of  argument  omitted.] 

Sir  Horace  Davey,  Q.C.,  and  A.  R.  Kirby  for  the  defendants.  The 
order  of  May  9,  1883,  must  be  construed  with  reference  to  what  the 
Court  may  consider  to  be  the  correct  doctrine  of  equity  as  to  subroga- 
tion in  such  cases.  It  is  contended  that  the  view  of  the  doctrine  on 

1  22  Ch.  D.  61 ;  also  9  App.  Cas.  857,  not  on  this  point. 


- 

BARONESS   WENLOCK  V.   EIVER   DEE   CO.  579 

the  subject  contended  for  on  behalf  of  the  plaintiffs  is  far  too  wide 
and  sweeping.  The  argument  for  the  plaintiffs  amounts  to  this:  viz., 
that  the  rule  which  forbids  borrowing  money  ultra  vires  is  practically 
abrogated  wherever  it  can  be  shewn  that  money  so  borrowed  was  ap- 
plied to  the  purposes  of  the  corporation,  that  is  to  say,  that  as  be- 
tween the  directors  and  the  shareholders  it  was  not  misapplied.  The 
doctrine  of  Blackburn  Benefit  Building  Society  v.  Cunliffe,  Brooks 
&  Co.1  only  applies  to  debts  and  liabilities  existing  at  the  time  of  the 
advance  which  have  been  satisfied  out  of  it.  So  far  as  such  debts  and 
liabilities  are  concerned,  it  is  clear  that  there  has  been  no  increase  of 
the  liability  of  the  company.  It  is  merely  a  substitution  of  one  cred- 
itor for  another.  Altogether  different  considerations  arise  when  the 
money  borrowed  is  applied  to  payment  of  a  liability  subsequently  in- 
curred and  which  might  never  have  been  incurred  if  the  money  had  not 
been  borrowed.  The  extension  of  the  equitable  doctrine  now  sought  to 
be  made  would  have  the  most  dangerous  effects,  as  enabling  companies 
practically  to  borrow  without  limit. 

[LORD  ESHER,  M.R.  But  even  if  the  doctrine  be  limited  to  debts 
previously  incurred,  the  company  have  only  to  postpone  the  borrowing 
until  after  the}'  have  incurred  the  liability.] 

The  true  principle  is,  that  there  is  supposed  to  have  been  an  assign- 
ment of  the  debt  paid  out  of  the  advance  to  the  person  making  the 
advance ;  that  the  quasi-lender  really  pa3'S  his  mone}*  to  the  creditor 
and  takes  an  assignment  from  him  of  the  debt ;  but  that  supposed 
assignment  is  only  applicable  to  the  case  of  debts  in  existence  at  the 
time  of  the  advance.  In  the  previous  cases  on  the  subject  the  ques- 
tion arose  with  regard  to  existing  debts. 

It  is  clear  that  the  plaintiffs'  contention  as  to  the  debts  paid  out  of 
the  25,OOOL  validly  borrowed  cannot  be  right,  for  the  plaintiffs  would 
be  getting  the  same  thing  twice  over  if  it  were ;  and  the  terms  of  the 
order  rightly  construed  exclude  such  contention.  The  money  being 
validly  borrowed  was,  when  it  got  into  the  defendants'  hands,  the 
defendants'  own  money,  and  the  equity  to  subrogation  to  the  rights  of 
the  creditor  cannot  apply,  for  it  depends  on  the  doctrine  that  equity 
will  treat  the  money  borrowed  as  still  remaining  the  quasi-lender's 
property,  which  only  applies  when  the  money  is  borrowed  ultra  vires. 

Cur.  adv.  vult. 

The  judgment  of  the  Court  (Lord  Esher,  M.R.,  Fry,  and  Lopes, 
L.JJ.)  was  delivered  b}T  FRY,  L.J.  The  questions  which  now  require 
determination  in  this  case  arise  from  the  application  of  the  order  of 
this  Court  of  May  9,  1883,  to  the  facts  as  found  by  Mr.  Robinson,  the 
special  referee  named  in  the  order. 

By  that  order  it  was  directed  that  judgment  should  be  entered  for 
25,OOOZ.  and  interest,  and  in  addition  thereto  for  so  much  and  so  much 

1  22  Ch.  D.  61. 


580  BARONESS   WENLOCK   V.   RIVER  DEE   CO. 

only  of  the  sums  advanced  to  the  defendant  company  by  the  Rock 
Life  Assurance  Company  and  Baron  Wenlock  as  was  employed  in  the 
pojmonti  r>f  ftny  HpMs  or  liabilities  of  the  defendant_company  properly 
pavableby___Uifiaa,  with  interest  from  the  respective  dates  of  such 
employment  It  appears  that  some  of  the  moneys  were  applied  in 
payment  of  debts  and  liabilities  properly  payable  by  the  company  at  the 
dale  of  the  advances,  and  some  in  payment  of  debts  and  liabilities 
which  arose  or  became  property  payable  at  dates  subsequent  to  the 
advances.  The  defendants  contend  that  only  the  advances  employed 
in  payment  of  debts  and  liabilities  actually  payable  at  the  date  of  the 
advance  can  be  brought  within  the  operation  of  the  direction  in  the 
order.  The__j)lmntiffs  contend  that  all  these  advances  are  within 
the  directTonTana~fcbat  The  date"" of  the~~accruer  oT^the  liability  ia. 
immaterial.  We  are  of  opinion  that  the  plaintiffs'  contention  "ought  to 
"prevail.  \Ve  are  not  at  llberty'to  travehtJeyonct  or  review  the  declara- 
tion  contained  in  the  order  of  May  9,  1883,  which  is  binding  on  us  not 
only  as  a  decision  of  this  Court  but  by  reason  of  its  affirmation  by 
the  House  of  Lords :  and  in  our  opinion  the  order  rightly  bears  the 
wider  construction.  It  is  silent  as  to  any  limit  of  time  within  which 
the  liabilities  are  to  accrue,  or  within  which  they  are  to  be  paid :  and 
by  fixing  the  respective  dates  of  the  employment  of  the  sums  as  the 
periods  of  time  from  which  interest  is  to  run,  it  seems  to  indicate  that 
the  date  of  the  employment  and  not  of  the  advance  is  the  material 
one.  If  the  Court  had  intended  any  such  limitation  of  the  inquiry  as 
that  now  contended  for  by  the  defendants,  we  think  that  it  would  have 
found  expression,  if  not  in  the  formal  order,  at  an}7  rate  in  the  oral 
judgments,  but  we  can  find  no  trace  of  it. 

But  we  go  further  and  say  that  in  our  judgment  the  equity  in  ques- 
tion knows  of  no  such  limitation  as  that  suggested.  This  equity  is 
based  on  a  fiction,  which,  like  all  legal  fictions,  has  been  invented  with 
a  view  to  the  furtherance  of  justice.  The  Court  closes  its  eyes  to  the 
true  facts  of  the  case,  viz.,  an  advance  as  a  loan  by  the  quasi-lender 
to  the  company,  and  a  payment  by  the  company  to  its  creditors  as  out 
of  its  own  moneys  :  and  assumes  on  the  contrary  that  the  quasi-lender 
and  the  creditor  of  the  company  met  together  and  that  the  former 
fidvanpRd  t.o  the  latter  the  firnpunr  or  his  claimagainst  the  company 
and  took  an  assignment  of  that  claim  for  his  ownl)enefit.  There  is  no 
reason  that  we  can  find  for  supposing  that  this  imaginary  transaction 
between  the  quasi-lender  and  the  creditor  was  confined  to  the  da}'  and 
hour  of  the  advance  of  the  money  to  the  company :  in  the  coffers  of  the 
company  the  mono}-  re  all}'  advanced  as  a  loan  is  still  thought  of  by  the 
Court  as  the  money  of  the  quasi-lender :  and  the  Court,  as  the  author 
of  the  benevolent  fiction  on  which  it  acts,  can  fix  its  own  time  and 
place  for  the  enactment  of  the  supposed  bargain  between  the  two  par- 
ties who  have  met  and  contracted  together  only  in  the  imagination  of 
the  Court.  The  true  limit  of  the  doctrine  we  conceive  to  be  stated  by 
Lord  Selborne,  L.C.,  in  delivering  the  judgment  of  this  Court  in  the 


BARONESS   WENLOCK  V.   KIVEK  DEE   CO.  581 

case  of  the  Blackburn  Building  Society  v.  Cunliffe,  Brooks  &  Co. : 1 
"The  test,"  said  he,  "is,  has  the  transaction  really  added  to  t.hp 
liabilities  of  the  company?  If  the  amount  of  the  company's  liabilities 
remains  in  substance  unchanged,  but  there  is  merely  for  the  conveni- 
ence of  payment  a  change  of  the  creditor,  there  is  no  substantial  bor- 
rowing  in  the  result,  so  far  as  relates  to  the  position  of  the  company. 
Rtggntetr  in  thaT  light^  it  is  consistent  with  the  general  principle  of 
equity  that  those  who  pay  legitimate  demands  which  they  arc  bound  in 
some  way  or  other  to  meet  and  have  had  the  benefit  of  other  people's 
money  advanced  to  them  for  that  purpose,  shall  not  retain  ihnt,  benefit 
so  as,  in  substance,  to  make  those  other  pf^plp  pay  thei1'  debt?.  I 
"take  that  to  be  a  principle  sufficiently  sound  in  equity :  and,  if  the 
result  is  that  by  the  transaction  which  assumes  the  shape  of  an  ad- 
vance or  loan  nothing  is  really  added  to  the  liabilities  of  the  company, 
there  has  been  no  real  transgression  of  the  principle  on  which  the}-  are 
prohibited  from  borrowing."  Now  the  payment  of  bonfi  fide  liabilities 
arising  or  accruing  subsequently  to  the  actual  date  of  the  advance  has 
in  no  way  really  added  to  the  liabilities  of  the  company  and  therefore 
in  no  way  transgresses  the  boundaries  of  the  doctrine  as  laid  down  by 
this  Court  in  the  case  to  which  we  have  referred.  Sir  Horace  Dave}' 
forcibly  warned  us  of  the  danger  of  the  proposition  which  we  have  laid, 
down,  andsaid  that  it  wouict  attord  to  companies~a  facile  means  of- 
evaclmg~the^[mitof  their  borrowing  powers.  But  the  danger  appears 
tolls' imaginary! We  do  not  think  that  capitalists  will  be  found  know- 
ingly  flndwHlingly  to  advance  money  In  the  hope  nf  rpnny^rimyjt 
on  the  grwimTpfsome  future  subrogation  to  the  future  rights  nf  ROITIP. 
future  creditor.  The  doctrine  has  rarely,  if  ever,  done  more  for  an}7 
one~than  snatch  a  few  brands  from  the  burning.  In  the  present  case 
the  utmost  extension  of  the  doctrine  will  leave  the  plaintiffs  heavy 
losers. 

It  is  conceded  that  under  the  order  of  May  9,  1883,  the  plaintiffs  are 
entitled  to  the  25,OOOZ.  and  to  so  much  of  the  sums  advanced  beyond 
the  25,000/.  as  was  expended  in  satisfaction  of  the  debts  and  liabilities 
of  the  company.  The  plaintiffs  contend  that  they  are  entitled,  in 
addition  to  -all  this,  to  so  much  of  the  25,000/.  itself  as  was  so  ex- 
pended. They  contend  that  this  was  given  to  them  by  the  express 
terms  of  the  order,  and  that  the  point,  therefore,  is  not  open  to  further 
consideration.  We  do  not  so  read  the  order ;  far  it  appears  tr>  i^  fjjat. 
the  25. OOQl.  is  denH"  W1'th  oopqyq^olyj  in  thp  firaf  pln^  nnrl  that  the  rest^ 
of  th^-order  deals  with  sums  in  every  respect  outside  of  and  beyond 
"the  25,000/._  The  words  in  the  order  "  in  addition  "  exclude,  in  our 
opinion,  all  further  consideration  both  of  the  borrowing  of  the  25,000/. 
and  of  its  application.  And  in  our  opinion  this  is  right  in  point  of 
reason  and  principle :  for  the  25,000£  having  been  validly  borrowed 
became  part  of  the  moneys  of  the  company  as  much  as  the  original 

i  22  Ch.  D.  61,  at  p.  71. 


582  IN   RE   NATIONAL,   ETC.   BUILDING  SOCIETY. 

subscriptions  of  the  members  or  the  produce  of  sales  of  its  lands  : 
and  no  application  by  the  company  of  its  own  moneys  to  the  payment 
of  its  own  debts  can  be  conceived  of  as  a  transaction  between  a  quasi- 
lender  to  the  company  and  the  creditors  of  the  company,  or  lead  to  a 
subrogation  of  the  creditors'  rights  to  the  stranger.  If  the  plaintiffs 
\rf  bp  snhrogated  to  the  rights  of  those  creditors  who  were  paid 
95tnoo^..  we  do  not  see  why  they  should  not  1™  anhi-r>gntp^  fcT 
paid  by  tl]ft  company  with  its  own  moneys 


from  any  source  whatever. 

[Tne  mallei'  WHa  ywit  back  to  the  referee  with  various  declarations 
in  accordance  with  the  principles  laid  down  in  the  foregoing  opinion.] 


IN  BE  NATIONAL,  &c.  BUILDING  SOCIETY. 
Ex  PARTE  WILLIAMSON. 

1869.    L.  R.  5  Chancery  Appeals,  309.1 

THIS  was  a  motion  made  by  special  leave  of  the  Court  of  Appeal  to 
discharge  an  order  of  the  Master  of  the  Rolls,  whereby  the  National 
Permanent  Benefit  Building  Society  was  ordered  to  be  wound  up. 

The  company  was  formed  under  the  Benefit  Societies  Act,  6  &  7 
Will.  4,  c.  32,  and  commenced  business  in  February,  1865. 

The  principal  object  of  the  company,  as  stated  in  the  affidavit  of  Mr. 
W.  Richardson,  the  secretary,  was  to  provide  a  safe  mode  of  invest- 
ment for  the  funds  of  another  society,  called  the  National  Savings 
Bank  Association. 

The  rules  contained  the  usual  provisions  for  advancing  money  to 
members  who  held  shares,  and  also  contained  powers  of  investing 
money  in  the  hands  of  the  directors  ;  but  there  was  no  power_to  borrow 


The  prospectus,  which  was  issued  after  the  rules  had  been  certified, 
contained  the  following  announcement  :  "  The  directors  have  made 
arrangements  to  borrow  sums  to  be  advanced  to  such  members  as 
desire  to  receive  an  advance  before  the  time  for  it  regularly  arrives, 
such  members  of  course  paying  interest  on  the  sums  lent,  until  their 
turn  arrives." 

In  September,  1865,  the  Building  Society  borrowed  £400  from  the 
Savings  Bank  Association,  which  was  forthwith  advanced  by  the 
directors  of  the  Building  Society  to  a  member  on  mortgage  security  ; 
and  the  mortgage  deed  was  deposited  with  the  Savings  Bank,  and 
the  contributions  of  the  member  paid  into  the  Savings  Bank.  In 

1  Arguments  omitted.  —  ED. 


IX   RE   NATIONAL,   ETC.   BUILDING  SOCIETY.  583 

January,  1866,  the  Building  Society  borrowed  a  further  sum  of  £900, 
which  was  applied  in  advances  to  members,  and  secured  in  like  man- 
ner.    Shortlj1  afterwards  the  Savings  Bank  stopped  payment,  at  which" 
time  the}'  had  advanced  £1300  to  the  Building  Society.     The  Savings 
Bank  Association  was  subsequently  ordered  to  be  wound  up. 

On  the  13th  of  July,  1867,  the  Master  of  the  Rolls  made  an  order 
to  wind  up  the  Building  Society  as  an  unregistered  company  under 
Part  8  of  the  Companies  Act,  1862.  The  order  was  made  on  the 
Petition  of  the  official  liquidator  of  the  Savings  Bank  Association, 
who  claimed  to  be  a  creditor  for  £1300  due  to  that  Association. 

A  proof  for  that  sum  was  afterwards  admitted  against  the  estate  of 
the  Building  Society,  and  an  order  for  a  call  was  made  upon  the  con- 
tributories  for  payment  of  it.  From  this  order  J.  W.  Williamson  and 
others,  who  had  been  settled  on  the  list  of  contributories,  appealed. 

When  the  appeal  was  opened  before  the  Lord  Justice  Giffard  it 
appeared  that  there  was  no  debt  due  from  the  Building  Society  except 
the  £1300  on  which  the  winding-up  Petition  was  founded  ;  and  as  the^ 
ground  of  the  appeal  was  that  this  debt  was  invalid,  the  Lord  Justice 
directed  HOlltiti  of  motion  to  oe  given  to  discharge  the  winding-up 
order.  This  having  been  done,  the  two  applications  came  on  together. 

The  principal  promoters  of  the  Building  Society  were  also  pro- 
moters of  the  Savings  Bank  Association,  and  J.  W.  Williamson  and 
some  others  of  the  Appellants  were  directors  or  otherwise  office  bearers 
in  both  companies. 

Roxburgh,  Q.  C.,  and  Cottrell,  for  appellants. 

Sir  R.  Baggallay,  Q.  C.,  and  Higgins,  for  official  liquidator. 

SIR  G.  M.  GIFFARD,  L.J.  In  point  of  form  this  is  an  appeal  from 
an  order  of  the  Master  of  the  Rolls,  but  in  reality  the  point  on  which 
I  am  about  to  determine  this  case  was  never  brought  fairly,  or  argued, 
before  him,  and  therefore  the  matter  is  very  similar  to  an  original 
hearing  before  me. 

The  case,  when  it  is  examined,  is  a  perfectly  simple  one,  but  before 
I  go  into  it  I  will  dispose  of  what  Sir  Richard  Baggallay  said  as  to  the 
parties  who  are  making  this  application,  and  as  to  the  delay.  I  quite 
agree  that  in  man}'  cases  delay  may  be  of  very  great  importance, 
especially  if  it  has  been  shown  that  there  have  been  sales  of  property 
or  other  dealings.  I  do  not  find  in  this  case  that  anything  of  that 
description  has  taken  place.  Then,  as  regards  parties,  the  nature  of 
the  case  is  such  that  I  do  not  consider  these  parties  personally  dis- 
abled from  bringing  forward  the  case,  more  especially  as  they  are  not 
the  only  contributories  on  the  list,  they  being  about  nine  out  of  a  num- 
ber of  thirty-six.  But,  although  I  think  the  winding-up  order  ought 
not  to  have  been  made,  I  certainly  shall  give  them  no  costs. 

The  matter  itself  is  a  very  simple  one.  This  company  is  what  is 
called  a  benefit  building  society.  Until  the  recent  decision  of  the 
Court  in  Laing  v.  Reed,1  it  was  doubted  whether,  even  if  you  put  a 

1  Law  Rep.  5  Ch.  4. 


584  IN  RE   NATIONAL,   ETC.   BUILDING   SOCIETY. 

limited  borrowing  power  among  the  rules  of  a  societ}*  of  this  sort,  that 
particular  rule  would  be  legal.  But,  what  we  have  here  is  a  limited 
benefit  building  society  without  any  power  to  borrow,  and  the  rules  and 
very  nature  ot  tllat  society  shew  that  it  would  be  contrary  to  its  con- 
8titution_tn  borrow  mpnpy  SQ_as_J.o__bind  the  compandor  to  make  the 
individual  members  of  the  company,  as  members,  liable  for  borrowing 
monev  ;  because  the  whole  constitution  of  the  society  is  that  the  memr 
bcrs  are  to  make  certain  monthly  payments7and  in  consideration  qf 
{h^5e~monthlv  payments  and  the  fines  provided  by  the  rules  they  are  to 
receive  certain  loans  . 

^AfteTthlTrules  had  been  certified  and  published,  and  the  nature  of 
the  company  had  been  fixed,  a  prospectus  was  issued,  and  by  that 
prospectus  the  directors  chose  to  say  "  that  they  have  made  arrange- 
raen£s  to  borrow  sums  to  be  advanced  to  such  members  as  desire  to 
receive  an  advance  before  their  turn  for  it  regularly  arrives,  such  mem- 
bers of  course  paying  interest  on  the  sum  lent  until  their  turn  arrives." 
If  we  look  at  the  nature  of  the  company,  that  can  only  amount  to  this  : 
that  the  directors  have  chosen  to  pledge  their  personal  liability.  It  is 
not  a  statement  that  the  company  were  liabl^  or  thai,  a.ny  person  who 
wflg  a  tv^Pinhpr  of  t.hp  nnmpnny  yrae  «.t  nil  hp^r^  °r  was  personally  made 
liagte~tn  I'eSPCct  ofany  debt  of  the  company. 

This  being  so,  let  us  see  on  what  ground  this  winding-up  order  was 
made.  It  was  made  upon  the  Petition  of  a  creditor,  and  in  order  to 
support  that  Petition  the  Petitioner  must  have  made  out  that  he  was  a 
creditor,  either  legal  or  equitable  —  either  character  would  be  sufficient. 
I  have  already  said  that  this  benefit  builc|ing  s»™«>ty  nnnlfl  not,  inp.nr  g 

debt  by  borrowing  money  upon  loan.      Inrlpprl,  thp  nnnf.rgry  lisa  hardly 

been  argued.  It  could  not  do  so  any  more  than  a  mining  company  or 
any  other  of  the  companies  which  have  not  authority  or  power  to  bind 
their  members  by  borrowing  money.  There  was  no  legal  debt,  and  if 
no  legal  debt,  the  next  thing  to  inquire  is,  whether  there  was  an  equit- 
able debt  ?  A  class  of  cases  has  been  referred  to  on  that  subject,  the 
principal  of  which  are  In  re  German  Mining  Company^-  and  In  re 
Cork  and  Youghal  Railway  Company?  the  latter  of  which  was  before 
the  Lord  Chancellor  and  mj'self  a  short  time  ago  ;  I  have  no  hesitation 
in  saying  that  those  cases  have  gone  quite  far  enough,  and  that  I  am  not 
disposed  to  extend  them.  They  were  decided  upon  a  principle,  recog- 
nized in  old  cases,  beginning  with  Marlow  v.  Pitfield,*  where  there  was 
a  loan  to  an  infant,  and  the  money  was  spent  in  paying  for  necessaries, 
and  in  another  case  of  a  more  modern  date,  where  there  was  money 
actually  lent  to  a  lunatic,  and  it  went  in  paying  expenses  which  were 
necessary  for  the  lunatic.  In  such  cases  it  has  been  held,  that,  .ilthnngh 
tllg_  party  lending  thp  mnnoy  qo,n1d  maintain  no  notion,  yet,  inasmuch  a,3 
his  money  had  gone  to  pay  debts  which  would  be  recoverable  at.  Inw^ 
into  a  Court  of  Equity  and  stand  in  thft  piano,  of  thnaa 


_ 
creditors  whose  debts  had  been  so  paid.     That  is  the  principle  of  those 

i  4  D.  M.  &  G.  19.  2  Law  Rep.  4  Ch.  748.  3  1  P.  Wms.  558. 


IN  EE   GUAKDIAN   PERMANENT  BENEFIT   BUILDING   SOCIETY.      585 

cases.  It  is  a  very  clear  and  definite  principle,  and  a  principle  which 
ought  not  to  be  departed  from. 

Then  it  is  said  that  the  present  case  is  brought  within  that  principle. 
I  do  not  think  it  necessary  to  go  through  the  evidence.  Suffice  it  to 
say,  that  there  is  no  proof  whatever  that  one  sixpence  of  this  money 
"WeTTOn  payment  of  any  debt  which  was  recoverable  against  the  com- 
pany. In  truth,  all  tins  money  went  for  the  purpose  of  loans  to  mem- 
TJersof  this  company.  It  is  not  for  me  to  say  whether  the  Savings 
Bank  Association  that  lent  the  money  have  or  have  not  an}-  right, 
either  as  against  the  property  of  this  company,  which  was  pledged  to 
them,  or  as  against  the  persons  to  whom  this  money  was  lent.  If  they 
have  any  such  rights,  they  can  only  be  asserted  by  filing  a  bill  and 
taking  a  very  different  proceeding  from  that  which  has  been  taken 
here. 

I  am,  therefore,  of  opinion  that  there  is  no  legal  or  equitable  debt. 
The  winding-up  Petition  is  in  tne  nature  of  an  execution  against  the 
company.  Whether  the  parties  may  or  may  not  themselves  be  person- 
ally liable,  or  however  much  I  ma}'  disapprove  of  their  conduct,  they 
are  not  to  be  precluded  from  shewing  that  the  title  of  the  creditor  to 
sustain  a  winding-up  Petition  totally  fails,  as  it  does  in  this  case.  The 
consequence  is,  that  the  winding-up  order,  the  proof  of  the  debt,  and 
the  order  for  the  call  must  all  be  discharged.  But,  as  I  said  before, 
the  conduct  of  these  parties  has  been  such  as  to  disentitle  them  to  any 
costs. 


IN  RE  GUARDIAN  PERMANENT  BENEFIT  BUILDING 

SOCIETY. 

1882.     Law  Reports,  23  Chancery  Division,  440.1 

APPEAL  from  the  Vice-Chancellor  of  the  Duchy  of  Lancaster. 

The  Guardian  Permanent  Benefit  Building  Society  was  enrolled  in 
the  year  1870,  under  the  6  &  7  Will.  4,  c.  32.  The  rules,  as  in  similar 
societies,  provided  both  for  borrowing  members  (called  advanced  mem- 
bers) and  for  investing  members  (called  unadvanced  members).  There 
was  a  rule  that  any  member  might  withdraw  unadvanced  shares  on 
giving  one  month's  notice.  Withdrawals  were  to  be  payable  in  rota- 
tion according  to  the  priority  of  notice.  The  other  facts  sufficiently 
appear  in*  the  opinion  of  JESSEL,  M.R. 

Ambrose,  Q.C.,  Maberly,  and  Edwin  Jones,  for  appellant.  [Argument 
omitted.] 

1  Only  so  much  of  the  case  is  given  as  relates  to  a  single  point.  The  statement  is 
abridged.  —  ED. 


586      IN   RE   GUARDIAN   PERMANENT   BENEFIT   BUILDING   SOCIETY. 

Riyby,  Q.C. ,  and  Hopkinson,  for  Mrs.  Grace-  Calvert. 

Although  the  borrowing  did  not  create  the  regular  relation  of  lender 
and  borrower  between  Mrs.  Grace-  Calvert  and  the  company,  yet  as 
between  her  and  the  members  of  the  company  who  invited  the  loans 
and  received  the  benefit  of  the  money  and  had  participated  in  the 
illegal  act,  important  equities  arise.  The  outside  liabilities  are  only 
about  £229,  and  will  be  easily  provided  for.  The  question  now  arises 
how  the  residuum  is  to  be  divided.  The  money  advanced  by  persons 
in  the  position  of  Mrs.  Crace-Caloert  cannot  be  altogether  traced,  but 
it  has  been  used  for  carrying  on  the  business,  and  it  is  unjust  that  the 
shareholders  who  have  had  the  benefit  of  the  loans  should  divide  the 
assets  in  priority  to  those  who  advanced  the  money.  This  applies  to 
the  unadvanced  shareholders  whose  claims  amount  to  more  than  £7400, 
and  who  claim  to  be  paid  in  priority  to  us :  Wilson's  Case.1  The 
borrowing  was  ultra  vires,  it  was  not  illegal  in  the  strict  sense  of  the 
word ;  therefore  there  can  be  an  equitable  liability  on  those  who  bor- 
rowed it  although  we  have  no  legal  remedj^.  The  doctrine  laid  down 
in  Barwick  v.  English  Joint  Stock  Bank?  is  not  applicable  :  Chapleo 
v.  Brunswick  Permanent  Building  Society / 8  Coltman  v.  Coltman.* 
It  is  similar  to  the  case  of  money  paid  by  mistake ;  the  person  who 
paid  it  is  entitled  to  recover  it.  It  is  a  principle  of  the  civil  law  which 
has  been  adopted  into  our  law  that  no  one  can  enrich  himself  at  the 
expense  of  another. 

[Remainder  of  argument  omitted.] 

S.  Hall,  for  the  unadvanced  shareholders. 

JESSEL,  M.R.  This  is  an  appeal  from  the  decision  of  the  Vice- 
Chancellor  of  the  County  Palatine  Court  of  Lancaster.  The  question 
is,  how  the  assets  of  the  society  are  to  be  disposed  of,  having  regard 
to  the  very  curious  circumstances  of  the  case.  This  is  a  building 
society  with  a  rule  which  empowered  the  governing  body  of  the  society 
to  borrow  unlimited  sums  of  money.  This  rule  has  been  certified  and 
been  acted  upon  to  a  very  considerable  extent.  But  it  is  now  well 
settled  b^' the  law  that  in  such  a  societ}' as  this  an  unlimited  power 
to  borrow  is  not  authorized,  and  that  consequently  such  .borrowing  is 
beyond  the  powers  of  the  society.  Still,  all  has  been  done  here  per- 
fectly bo  a  a  fide.  The  persons  who  made  the  rule,  as  well  as  those  who 
acted  upon  it  by  borrowing  and  lending,  all  acted  under  a  common 
mistake  in  law  that  that  was  a  lawful  rule,  and  was  binding  on  the 
society.  To  a  great  extent  the  borrowing  has  been  from  the  bankers  of 
the  society,  and  the  money  so  borrowed  has  been  advanced  to  members 
of  the  society  on  mortgage  securities  in  the  usual  way,  who  thereby 
became  advanced  members.  A  sum  of  about  £7000  has  also  been 
received  from  unadvanced  members,  and  has  been  employed  in  making 
loans  in  the  same  way.  The  borrowing  from  the  bankers  went  on  for 
a  long  time,  and  the  sums  borrowed  were  from  time  to  time  paid  off 

1  Law  Rep.  12  Eq.  516.  2  Ibid.  2  Ex.  259. 

8  6  Q.  B.  D.  696.  *  19  Ch.  D.  64. 


IN  RE   GUARDIAN   PERMANENT   BENEFIT   BUILDING   SOCIETY.      587 

with  money  borrowed  from  other  people,  including  the  Respondent,  ?' 
Mrs.  C divert.  In  some  cases  the  moneys  advanced  by  these  third 
parties  were  not  applied  in  repayment  to  the  bankers,  but  were  lent  to 
unadvanced  members,  and  so  these  funds  have  got  mixed  up  in  a  way 
which  renders  it  difficult  to  say  how  far  they  have  been  applied  in  one 
way  and  how  far  in  another.  Under  these  circumstances,  the  society 
was  wound  up,  and  it  appears  that  of  the  amount  paid  up,  amounting 
to  upwards  of  £81,000,  £7000  odd  has  been  obtained  from  the  unad- 
vanced members  of  the  society,  and  the  balance  of  the  sum  in  question 
had  been  obtained  in  some  shape  or  other  from  people  who  lent  their 
money  either  without  security  or  on  equitable  deposits  or  mortgages  of 
property  to  the  society,  and  the  present  Respondent  is  one  of  those 
persons.  Such  borrowing  from  her  was  unauthorized,  frnd  fionaPTipn£ty 
her  loan  to  the  society  die!  not  create  either  "a  legalor  equitable_debt 
from  the  society  to  her,  it  being  beyond  the  power  of  the  society  to 
incur  any  such  debt.  It  follows,  therefore,  that  the  deposit  or  security 
which  she  obtained  was  a  deposit  or  securitj'  for  nothing ;  it  was  a 
deposit  or  security  not  authorized,  and  the  result  is,  therefore,  that  she. 
must  give  it  up.  Upon  that  point  there  can  be  no  doubt  whatever. 
But  then  what  is  to  be  done  with  the  assets  of  the  society?  It  is 
obvious  that  if  the  society  realizes  £81,000  worth  of  its  securities,  there 
will  be  about  £70,000  odd  of  claims  made  which  have  arisen  from  the 
advances  made  by  the  persons  who  lent  the  society  their  money  under  the 
illegal  rule.  The  actual  figures  will  of  course  be  considerably  smaller, 
because  the  £81,000  will  not  realize  so  much  by  a  very  large  sum. 
Still,  after  paying  the  strictly  outside  creditors  and  the  sum  subscribed 
by  the  unadvanced  members,  there  will  be  a  very  large  surplus  to  be 
disposed  of.  vlt.,is_plain  that  it  cannot  be  said  on  behalf  of  the  society 
that  the  surplus  so  obtained  ought  to  be  retained  by  the  members  of 
the  society.  It  was  obtained  by  their  own  innocent  mistake,  because 
they  had  passed  the  rule  authorizing  the  directors  to  borrow.  They 
advertised  for  loans  and  so  obtained  the  money.  It  was  a  mistake 
common  to  both  sides.  The  surplus  which  arises  .from  tbe_  advances  jc^ 
made  must  obviously  on  the  plainest  principles  of  equity  be  returned 
to  the  people  who  advanced.  Nobody  can  have  a  claim  upon  it  except 
those  whose  money  it  is^  The  actual  money  cannot  be  traced,  but 
after  the  prior  claims  on  the  assets  of  the  company  have  all  been  paid 
off  the  surplus  must  come  to  them,  but  with  regard  to  the  intermediate 
application  of  the  surplus  it  must  go  to  the  outside  creditors  and  the 
unadvanced  members  who  have  established  .  a  claim.  The  outside 
creditors  had  nothing  to  do  with  the  adoption  of  the  mistaken  rule, 
they  were  not  bound  in  any  way,  and  the}'  are  therefore  entitled  to 
come  upon  the  society  and  say  that  the  assets  were  liable  to  satisfy 
their  demands.  Of  the  unadvanced  members  there  are  two  classes, 
those  who  had  given  notice  of  withdrawal  and  those  who  had  not ;  but 
for  the  purpose  of  the  present  judgment  it  is  unnecessary  to  distinguish 
between  them  in  order  to  determine  their  priorities.  It  cannot  be  said 


588  MORVILLE   V.   AMERICAN   TKACT   SOCIETY. 

that  the  unadvanced  members  of  the  society  are  not  to  take  the  assets. 
They  have  a  right  to  claim  payment  out  of  the  assets  and  it  is  impos- 
sible to  point  to  any  part  of  those  assets  as  coming  from  any  particular 
part  of  the  money  as  distinguished  from  the  rest.  Their  legal  rights 
must  therefore  prevail,  and  they  will  accordingly  be  paid  in  priority  to 
the  other  persons  who  would  get  the  surplus.  Of  course,  the  costs  of 
tEe^  liquidation  must  be  paid  in  priority  to  every  other  claim.  The 
proper  decree  to  make  will  -be  to  discharge  the  order  of  the  Vice- 
Chancellor,  to  order  payment  of  the  liquidator's  costs,  then  those  of 
the  Respondents ;  next,  payment  of  the  outside  creditors,  then  of  the 
ordinary  unadvanced  members,  and  then  distribute  the  surplus  pro  raid 
among  the  persons  who  had  advanced  their  money  by  wa}'  of  loan  upon 
those  invalid  contracts.  The  deeds  must,  of  course,  be  ordered  to  be 
delivered  up  to  the  official  liquidator. 
COTTON  and  Bo  WEN,  L.JJ.,  concurred. 


MORVILLE  v.   AMERICAN  TRACT  SOCIETY. 

1877.     123  Massachusetts,  129.1 

COLT,  J.  The  plaintiff  paid  five  thousand  dollars  to  the  American 
Tract  Society,  under  an  agreement  with  the  treasurer  of  that  society 
that  it  should  be  repaid  to  him  in  case  the  society  should  not  be  allowed 
to  retain  its  catholic  condition,  and  unless  fifty  thousand  dollars  be 
raised  within  five  years  for  evangelization  purposes.  A  receipt  for  the 
money,  signed  by  the  treasurer,  and  reciting  that  agreement,  was  given 
to  the  plaintiff.  There  was  a  failure  of  one  of  the  conditions  named,  but 
the  society  refused  to  paj'  the  money  back  to  the  plaintiff. 

The  right  of  the  plaintiff  to  recover  the  money  so  given  was  submitted 
by  the  parties  to  three  arbitrators,  by  a  submission  entered  into  before  a 
justice  of  the  peace  under  the  Gen.  Sts.  c.  147.  An  award  in  favor  of 
the  plaintiff  was  duly  returned  to  the  Superior  Court,  and  many  objec- 
tions were  there  made  by  the  defendant  to  its  acceptance.  It  is  neces- 
sary to  consider  only  those  which  were  relied  on  at  the  argument. 

1.  The  defendant  insisted  that  the  contract  made  with  the  plaintiff 
and  the  submission  to  arbitration  of  the  claims  arising  under  it,  were 
not  within  the  chartered  powers  of  the  society. 

[The  learned  Judge  held,  that  the  contract  was  intra  vires.  After 
expressing  this  view,  the  opinion  proceeds  as  follows :] 

There  is  another  answer  to  this  objection  which  is  equally  satisfac- 
tory. The  question  is  upon  the  acceptance  of  the  award ;  no  question 
of  pleading  is  involved.  The  award  is  binding,  if  in  any  form  of  action 

1  Statement  and  argument  omitted.  Only  so  much  of  the  opinion  is  given  as  re- 
lates to  a  single  point.  —  ED. 


MORVILLE   V.  AMERICAN   TRACT   SOCIETY.  589 

the  plaintiff  is  entitled  to  recover.  If  the  defendant  were  to  be  allowed 
the  full  benefit  of  the  point  made,  the  plaintiff  could  only  be  prevented 
from  enforcing  his  express  contract.  The  money  of  the  plaintiff  was 
taken  and  is  still  held  by  the  defendant  under  an  agreement  which  it  is 
contended  it  had  no  power  to  make,  and  which,  if  it  had  power  to  make, 
it  has  wholly  failed  on  its  part  to  perform.  It  was  money  of  the  plain- 
tiff, now  in  the  possession  of  the  defendant;,  wl""h  in  equity  and  good 
conscience  it  ought  now  to  oav  overr  and  whinh  n^y  ^e  recovered  in  an  -^ 
action  for  money  had  and  received.  The  illegality  is  not  that  which  f 
arises  when  the  contract  is  in  violation  of  public  policy  or  of  sound 
morals,  and  under  which  the  law  will  give  no  aid  to  either  party.  The 
plaintiff  himself  is  chargeable  with  no  illegal  act,  and  the  corporation  is 
the  only  one  at  fault  in  exceeding  its  corporate  powers  by  making  the 
express  contract.  The  plaintiff  is  not  seeking  to  enforce  that  contract, 
but  only  to  recover  his  own  money  and  prevent  the  defendant  t'romjm- 
iiistiy  retaining  the  benefit  of  its  own  illegal  act.  He  is  doing  nothing 
which  must  be  regarded  as  a  necessaiy  affirmance  of  an  illegal  act. 

The  right  to  recover  the  money  upon  the  implied  promise,  under  like 
circumstances,  has  been  heretofore  recognized  by  this  court. 

In  White  v.  Franklin  Bank,  22  Pick.  181,  where  an  express  contract 
was  made  by  a  bank  for  the  payment  of  a  deposit  at  a  future  da}'  cer- 
tain, against  the  prohibition  of  the  Rev.  Sts.  c.  36,  §  57,  it  was  held 
that,  while  no  action  could  be  maintained  by  the  depositor  upon  the 
express  contract,  yet  he  might  recover  back  the  mone}*,  without  a  pre- 
vious demand,  in  an  action  commenced  before  the  expiration  of  the 
time,  tjbe  parties  not  being  in  pari  delicto,  and  the  action  being  in  dis- 
affirm ance^TthelTIegarcontracL The  general  proposition,  that  where 
money  is  paid  on  a  contract  which  is  merely  prohibited  by  statute,  and 
the  receiver  is  the  principal  offender,  it  may  be  recovered  back,  was  laid 
down  in  that  case  by  Wilde,  J.,  who  declared  it  to  be,  not  only  conso- 
nant with  principles  of  sound  policy  and  justice,  but  to  have  been  now 
settled  by  authority,  whatever  doubt  may  have  been  formerly  enter- 
tained. "  To  decide,"  he  adds,  "  that  this  action  cannot  be  maintained, 
would  be  to  secure  to  the  defendants  the  fruits  of  an  illegal  transaction, 
and  would  operate  as  a  temptation  to  all  banks  to  violate  the  statute, 
by  taking  advantage  of  the  unwar}',  and  of  those  who  may  have  no 
actual  knowledge  of  the  existence  of  the  prohibition." 

Again,  in  Dill  v.  Wareham,  7  Met.  438,  where  a  town  made  a  con- 
tract with  reference  to  certain  fisheries  within  its  limits  which  it  had  no 
authority  to  make,  and  which  it  refused  to  perform,  it  was  decided  that 
the  plaintiff  might  recover  back  rnone}'  paid  in  advance  on  the  contract, 
as  money  had  and  received  by  the  town  to  his  use. 

The  same  principle  is  recognized  in  New  York.  Utica  Ins.  Co.  v. 
Scott,  19  Johns.  1.  Utica  Ins.  Co.  v.  Cadwell,  3  Wend.  296.  Utica 
Ins.  Co.  v.  Bloodgood,  4  Wend.  652. 

[Remainder  of  opinion  omitted.] 

Exceptions  overruled. 


590  NORTHWESTERN   UNION   PACKET   CO.   V.   SHAW. 


NORTHWESTERN  UNION  PACKET   CO.  v.   SHAW. 

1875.     37  Wisconsin,  655.1 

APPEAL  from  the  Circuit  Court. 

The  complaint  alleges  that  plaintiff  entered  into  a  contract  with  the 
defendant  to  purchase  of  the  latter  4,000  bushels  of  wheat,  to  be  deliv- 
ered from  the  mill  of  the  defendant  into  the  barge  of  the  plaintiff  imme- 
diately ;  that  plaintiff  paid  the  defendant  $1,000  on  account  of  such 
purchase ;  that  plaintiff  furnished  a  suitable  barge  on  the  day  the  con- 
tract was  made,  but  that  defendant,  though  requested,  failed  to  deliver 
the  wheat  or  to  repay  the  $1,000  so  advanced.  The  complaint  also 
avers  that  the  barge  was  detained  for  several  days,  and  that  the  market 
price  of  wheat  advanced  immediately  after  the  contract  was  made. 
Plaintiff  seeks  to  recover:  1.  The  $1,000  paid  on  account  of  the 
contract;  2.  Damages  for  the  breach  of  contract  by  the  defendant; 
3.  Compensation  for  the  value  of  the  use  of  the  barge  while  so 
detained. 

Defendant's  answer  admits  the  making  of  the  contract,  the  payment 
of  the  $1,000,  and  the  non-delivery  of  the  wheat.  The  answer  also 
alleges  that  it  was  the  fault  of  the  plaintiff  that  the  wheat  was  not 
delivered  ;  and  contains  a  counterclaim  for  damages  suffered  by  defend- 
ant by  reason  of  the  failure  of  plaintiff  to  perform  the  contract  on  its 
part. 

The  articles  of  incorporation  of  the  plaintiff  company  contemplated 
that  the  business  of  the  company  should  be  confined  to  that  of  a  com- 
mon carrier  of  persons  and  property. 

On  the  trial  the  circuit  judge  held  that  the  plaintiff  had  no  power  to 
make  the  contract  declared  on,  and  the  juiy,  under  his  direction,  found 
for  defendant.  Judgment  was  entered  on  the  verdict,  and  plaintiff 
appealed. 

Cameron  <&  Losey,  for  appellant. 

Wing  &  Prentiss,  for  respondent. 

LYON,  J.  [After  discussing  the  question  whether  the  contract  was 
ultra  vires  on  the  part  of  the  plaintiff.] 

LWe  conclude  that  the  contract  set  forth  in  the  pleadings,  as  to  the 
plaintiff,  is  ultra  vires,  and  that  no  claim  for  damages  resulting  from  a 
breach  thereof  can  be  successfully  asserted  by  either  party.  This  dis- 
poses of  the  counterclaim  of  the  defendant,  and  of  all  claims  of  the 
plaintiff  except  the  claim  to  recover  the  $1,000  paid  on  account  of  the 
attempted  purchase  of  the  wheat. 

But  the  question  remains  whether  the  plaintiff  is  entitled  to  recover 
the  $1,000.  If  it  can  recover  it,  no  good  reason  is  perceived  why  it 
may  not  do  so  in  this  action.  The  complaint  states  all  the  facts  essen- 

1  Statement  abridged.    Arguments  and  part  of  opinion  omitted.  —  ED. 


NORTHWESTERN   UNION   PACKET   CO.   V.   SHAW.  591 

tial  to  be  averred  in  an  action  to  recover  the  same,  except  that  the 
plaintiff  had  no  power  to  make  the  contract,  and  that  omission  ma}-  be 
supplied  by  amendment.  Such  an  amendment  cannot  prejudice  the 
defendant,  for,  in  the  progress  of  the  case  thus  far,  he  has  constantly 
asserted  such  want  of  power  as  a  defense. 

An  extended  discussion  of  the  question  will  not  be  profitable.  There 
are  many  adjudications  in  this  country  and  in  England,  bearing  upon 
it,  some  of  which  are  cited  in  the  brief  of  counsel  for  the  plaintiff.  The 
cases  have  been  carefully  examined,  and  we  think  the  rule  may  fairly  be 
deduced  from  them,  that  when  money  has  been  paid  upon  an  executory 
agreement,  which  is  frpp  from  mprpi  tmjifrndo,  ^fl  jfl  pot  probibitRi 
by  positive  law,  but  which  is  invalid  by  reason  of  the  legal  incapacity 
of  a  party  thereto,  otherwise  capable  of  contracting,  to  enter  into  that 
particular  agreement,  or  for  want  of  compliance  with  some  formal  re- 
quirement  or  tne  law  (as  tnat  the  contract  shall  be  in  writing,  and  the 
like),  the  mone}'  so  paid  may,  while  the  agreement  remains  executory, 
be  recovered  back  by  the  party  paying  it,  in  an  action  for  money  had 
and  received. 

Man}*  oi'  ine  cases  go  farther,  and  sustain  the  action  when  some  of 
the  foregoing  conditions  are  wanting.  But  the  exigencies  of  this  case 
do  not  require  us  to  determine  how  far  the  rule  may  be  extended,  or 
what  conditions  may  be  omitted  therefrom  without  defeating  the  action. 
The  rule  is  here  stated  most  favorably  for  the  defendant ;  and  yet  it  is 
clear  that  under  it  the  plaintiff  may  maintain  an  action  to  recover  the 
mone}'  paid  on  the  invalid  agreement.  A  contract  to  buy  wheat  is  an 
jnnocent  ftnft  i  n"  at.n.t.iit.p-  h.aa  prohibited  it ;  and  this  particular  agree- 
ment  is  invalid  only  because  of  the  accident,  that  the  purchaser  is^ 
corporatijft"  inatoq/i  af  a  Natural  person,  and  happens  to  lack  authority7 
to  make  this  particular  contract. 

In  addition  to  the  cases  on  this  subject  cited  by  counsel,  the  following 
will  be  found  to  sustain  the  views  above  expressed :  Bagott  v.  Orr,  2 
Bos.  &  Pul.,  472  ;  Lowry  v.  Bourdieu,  Doug.,  468  ;  Aubert  v.  Walsh, 
3  Taunt.,  277  ;  Busk  v.  Walsh,  4  id.,  290.  In  Thomas  v.  Sowards, 
25  Wis.  631,  the  rule  above  stated  was  applied.  See  also  Brandeis  v. 
Neustadtl,  13  id.,  142.  But  it  is  argued  b}'  the  learned  counsel  for 
the  defendant,  that  the  case  of  The  M.,  W.  &  M.  P.  It.  Co.  v.  The 
W.  &  P.  P.  R.  Co.,  1  Wis.  59,  is  an  authority  fatal  to  the  plaintiff's 
right  to  recover.  That  was  a  mortgage  given  to  secure  the  performance 
of  an  agreement  which  the  court  held  to  be  ultra  vires.  It  was,  as 
Chief  Justice  WHITON  said  in  the  opinion,  an  action  founded  on  the 
agreement  and  on  it  alone.  The  contract  failing,  the  action  failed  as  a 
matter  of  course.  In  strict  obedience  to  the  authorit}'  of  that  decision, 
we  hold  in  this  case,  that  so  far  as  the  action  is  founded  on  the  void 
agreement,  it  cannot  be  maintained.  Had  that  been  simply  an  action 
to  recover  the  amount  paid  by  the  plaintiff  for  the  use  of  the  defendant, 
it  might  have  been  decided  differently.  But  it  was  not  such  an  action, 
and  the  court  did  not  determine  whether  such  an  action  could  be  main' 


592  BRUNDRED   V.   RICE. 

tained.  The  case  is  not,  therefore,  an  authority  against  the  plain- 
tiff's right  to  recover  his  advances  on  account  of  the  void  executory 
agreement. 

By  the  Court.  —  The  judgment  of  the  circuit  court  is  reversed,  and 
the  cause  remanded  for  a  new  trial. 

A  motion  for  rehearing  was  denied. 


SECTION  X. 

Liability  of  Corporator  where  there  is  Crime,.  Tort,  or  Ultra 
Vires  Contract  on  the  Part  of  the  Corporation.1 

BRUNDRED  v.    RICE. 

1892.     49  Ohio  State,  640.2 

ERROR  to  Circuit  Court. 

Rice  sued  Brundred  for  money  claimed  to  have  been  unlawfully  ex- 
acted of  him  by  the  Cleveland  and  Marietta  R.  R.  Co.,  as  freight,  on 
crude  petroleum.  The  action  was  treated  by  both  sides  as  an  action 
of  assumpsit  for  money  had  and  received.  It  appeared  that  there  was 
an  agreement  entered  into  between  the  R.  R.  Co.  and  Brundred  et  als., 
that  the  R.  R.  Co.  should  charge  all  shippers  of  oil  a  certain  rate,  and 
should  pay  over  to  Brundred  et  als.  (who  were  themselves  shippers  of 
oil)  one  half  the  freight  so  charged  and  collected.  It  also  appeared  that, 
soon  after  the  making  of  the  above  agreement,  a  corporation  styled  the 
Ohio  Transit  Co.  was  organized  under  the  laws  of  Ohio ;  and  became, 
by  assignment,  a  party  to  the  above  agreement,  nominally  acquiring  all 
the  rights  of  Brundred  et  als.  thereunder. 

Rice  contended  that  Brundred  et  als.  were  the  promoters  of  the  Ohio 
Transit  Co.,  caused  it  to  be  organized,  and  became  and  have  alwa\'s 
been  its  principal  stockholders  and  its  managing  officers  ;  and  that  they 
caused  the  Ohio  Transit  Co.  to  become  a  party  (b}*  assignment)  to  the 
above  agreement  for  the  purpose  of  canning  out  their  unlawful  designs, 
and  made  use  of  said  Transit  Co.,  through  their  control  of  the  same  as 
its  officers,  to  accomplish  their  unlawful  purposes. 

The  defendants  in  their  answer,  among  other  things,  set  up  that  the 
Ohio  Transit  Compan}7  was  a  corporation  duly  organized  under  the  laws 
of  Ohio,  and  that  they  could  not  be  charged  with  moneys  received  by  it, 
on  the  ground  set  forth  in  the  petition.  But  the  court  charged  the  jury 

1  See  a  later  chapter  as  to  statutory  individual  liability  of  stockholder  for  debts  of 
corporation.  —  ED. 

2  Statement  abridged.    Arguments  omitted.  —  ED. 


PEOPLE    V.    ENGLAND.  593 

that,  "if  you  find  by  the  greater  weight  of  the  evidence,  that  the  as- 
signment of  the  contract  was  a  mere  form ;  that  the  intention  of  the 
defendants  in  organizing  this  corporation  was  to  make  it  a  mere  agency 
to  receive  this  money,  to  be  distributed  to  them  under  the  contract,  and 
according  to  their  right  in  it  as  if  there  had  been  no  assignment ;  the 
mere  agent,  I  sa}-,  to  hold  the  money  for  their  benefit,  why  then,  a  pa}-- 
ment  to  the  corporation,  under  those  circumstances,  is  a  pa3~ment  to 
them ;  and  the  plaintiff  would  have  a  right  to  recover  as  if  it  had  been 
put  in  their  hands." 

Rice  recovered  $1,823.75.  The  judgment  was  affirmed  by  the  Circuit 
Court.  Brundred  et  als.  brought  error. 

Nye  &  Oldham,  for  plaintiffs  in  error. 

A.  D.  Follett,  W.  B.  Loomis,  and  E.  B.  Elnkead,  for  defendant 
in  error. 

BY  THE  COURT.  [After  deciding  that  the  agreement  between  the 
R.  R.  Co.  and  Brundred  et  als.  was  against  public  policy ;  and  that 
the  shipper,  on  discovering  the  facts,  might  maintain  an  action  against 
the  party  to  whom  the  money  had  been  paid  over  by  the  R.  R.  Co.] 

It  is  claimed  that  the  interposition  of  The  Ohio  Transit  Company, 
an  incorporation  under  the  laws  of  Ohio,  organized  for  the  purpose  of 
transporting  petroleum  through  tubing  and  pipes,  precludes  a  recovery 
against  the  defendants.  Tf  it  had,  in  gnnd  faith,  hppn  nrganizpri  for 
such  purpose,  there  is  no  doubt  but  that  the  receipt  of  the  money  by  it 
under  me  agreement,  would  constitute  a  defense  to  the  action  against 
the  defendants.  Tf,  however,  it  was  organized  by  the  promoters,  the  de- 
fendants, simply  for  the  purpose  of  consummating  the  illegal  agreement 
and  shielding  themselves  from  the  consequences  of  receiving  the  illegal 
exactions  made  under  it,  the  act  of  incorporating  can  be  of  no  avail  to 
them  as  a  defense.  The  court  fairly  submitted  this  question  to  the  jury, 
and  in  finding  their  verdict  for  the  plaintiff,  must  have  found  the  facts 
to  be  as  averred  in  the  petition.  It  is  a  stern  but  just  maxim  of  the 
law,  that  fraud  vitiates  everything  into  which  it  enters.  Deeds  and 
records  made  in  the  most  solemn  form  are  set  aside  and  held  for  naught 
when  shown  to  have  been  effectuated  for  the  purpose  of  fraud ;  and 
there  is  nothing  so  sacred  in  a  certificate  of  incorporation  as  to  take  it 
out  of  the  reach  of  this  maxim.  Judgment  affirmed. 


PEOPLE  v.   ENGLAND. 

1882.     34  New  York  Supreme  Court  (27  Hun),  139. 

CERTIORAJU  to  the  Court  of  Sessions  of  the  count}'  of  Schenectady, 
to  review  the  conviction  of  the  defendant  upon  an  indictment  charging 
him  with  publishing  in  The  Sun,  a  newspaper,  an  advertisement  of  an 
illegal  lottery. 

38 


594  PEOPLE   V.   ENGLAND. 

J.  T.  Schoolcraft,  district-attorney,  for  the  people. 

N~.  C.  Moak,  for  the  defendant. 

LANDON,  J.  The  evidence  tended  to  show  that  the  newspaper,  "  The 
Sun,"  in  which  the  advertisement  of  the  lottery  was  printed,  was 
published  by  a  corporation  duly  organized  and  known  as  "The  Sun 
Printing  and  Publishing  Association  ;  "  that  its  business  was  managed 
by  a  board  of  trustees  ;  that  the  defendant  wjia  ona  ofJJlft  fifc^^Vjgrs 
of  the  corporation,  and  employed  us  its  treasurer  and  purchasing  agent, 
and  superintendent  of  its  business  affairs.  It  did  not  appear  that  the 
t  had  any  knowledge  of  the  insertion  of  the  advertisement. 
the  trial  the  defendant,  by  his  counsel,  in  various  forms  of 


X 


request,  asked  the  court  to  instruct  the  jury  that  he  could  not  be  con- 
victed if  he  had  no  knowledge  or  notice  that  the  advertisement  was 
printed  by  the  corporation  ;  that  the  fact  that  he  was  a  stockholder  or 
treasurer  or  agent  or  employee  of  the  corporation  would  not  of  itself  be 
sufficient  to  convict  him,  if  the  corporation  published  the  advertisement 
without  his  knowledge.  The  court  held  otherwise,  and  instructed  the 
jury  that  if  the  advertisement  was  published  by  the  corporation  of  which 
the  defendant  was  a  member,  he  was  the  publisher  within  the  meaning 
of  the  statute. 

A  conviction  based  upon  this  instruction  cannot,  we  think,  be 
sustained. 

If  the  corporation  did  the  acts  constituting  the  offense,  it  must  have 
done  them  by  the  direction  or  permission  of  its  officers,  and  by  the 
personal  act  of  some  of  its  agents  or  servants.  It  seems  reasonable 
that  when  the  officer  or  servant  of  the  corporation  is  held  to  answer 
i-i-liithidliter  for  the  acts  of  the  corporation,  that  he  should  be  permitted 
to  require  that  some  evidence  be  given  showing  his  connection  with 
the  acts  constituting  the  offense.  He,  and  not  the  corporation,  stands 
indicted.  To  prove  that  the  corporation  did  the  acts  does  not  per  se 
prove  that  he  did  them  ;  it  must  also  be  shown  either  that  the  corpo- 
ration did  them  by  his  hand,  act,  direction  or  permission,  which,  of 
course,  is  direct  proof  of  his  own  acts  ;  or  such  circumstances  must  be 
shown  as  to  justify  the  conclusion,  as  a  fact,  that  what  the  corporation 
did  he  did  ;  in  other  words,  the  circumstantial  evidence  may  show  that 
the  defendant  actually  and  personally  did  the  acts  which  constitute  the 
offense. 

If  the  defendant  must  have  had  some  actual  personal  connection 
with  the  illegal  acts,  much  more,  it  seems  to  us,  must  he  have  had 
some  notice  or  knowledge  that  the  corporation  was  engaged  in  such 
acts  if  done  by  another.  Otherwise  the  defendant  mighth 
because  of  an  act  done  by  the  hand  of  auollleT.  ami  wilfhouL  hii 
or  knowledge.  The~fact  that  he  is  a  member  of  the  corporation  whose 
servants  did  the  act  may  lie  a  circumstance,  to  be  left  in  connection 
with  others  to  the  jury,  from  which  they  may,  under  proper  instruction, 
determine  whether  the  defendant  had  any  actual  participation  in  the  illegal 
acts  charged  ;  but  for  the  court  to  hold,  as  a  matter  of  law,  that  such 


MILL   V.  HAWKER.  595 

membership  charges  him  with  criminal  responsibility  for  the  illegal  acts 
of  the  corporation  is,  we  think,  wrong  in  principle,  and  unsupported  by 
authority. 

The  conviction  should  be  reversed  and  a  new  trial  ordered. 

LEARNED,  P.  J.,  and  BOARDHAN,  J.,  concurred. 

Judgment  and  conviction  reversed  and  new  trial  granted. 


MILL  v.   HAWKER. 

1874.     L.  R.  9  Exch.  309.1 

DECLARATION.  Trespass  by  taking  locks  off  the  plaintiff's  gates. 
Plea  :  not  guilty  by  statute.  Issue. 

Plaintiff  is  the  occupier  of  land,  through  which  there  runs  a  path, 
across  which  the  plaintiff  placed  gates  which  he  locked.     At  a  meeting 
of  the  highway  board  for  the  district  within  which  the  path  is  situated, . 
the  board  took  the  position  that  the  path  was  a  public  highway ;  and  I 
also  passed  a  resolution  directing  their  surveyor  to  remove  the  obstruc-Ji 
tion,  which  he  did. 

The  plaintiff  brought  this  action  against  all  the  members  of  the 
board,  who  had  concurred  in  the  resolution  and  against  Wickett,  the 
survej'or.2 

At  the  trial  no  evidence  that  the  locus  in  quo  was  a  highway  was 
given. 

KELLY,  C.  B.,  ruled  that  the  members  of  the  board  who  had  concurred 
in  the  resolution  were  not  liable  individually,  and  that  Wickett  was  not 
liable.  A  nonsuit  was  ordered. 

A  rule  was  obtained  to  set  aside  the  nonsuit  and  for  a  new  trial. 

Kingdon,  Q.  C.,  and  Finder  (Lopes,  Q.  C.,  with  them),  showed 
cause. 

Arthur  Charles  (H.  T.  Cole,  Q.  C.,  with  him),  in  support  of  the  rule. 

Cur.  adv.  vult. 

OLE  ASBT,  B.  The  judgment  I  am  about  to  read  is  that  of  my  Brother 
Pigott  and  myself. 

[The  learned  Judge  held,  that  the  surveyor,  Wickett,  was  liable.] 
As  regards  the  other  defendants  who  came  to  the  resolution  in  pur- 
suance of  which  the  illegal  act  was  done,  a  question  of  some  difficulty 
arises.  It  is  said  that  the  resolution,  having  been  afterwards  embodied 
in  the  order  signed  by  the  clerk,  became  a  corporate  act  of  the  highway 
board,  and  that  no  personal  liability  of  the  members  could  arise  upon 

1  Statement  abridged.    Arguments  omitted.  —  ED. 

2  So  much  of  the  case  as  relates  to  the  liability  of  the  surveyor  is  omitted.  —  ED. 


596  MILL   V.   HAWKER. 

it.     We  were  referredtp  man^authorities  to  shew  that  in  respect  of 

members^  of  thejcorboration  cannot  be 

see~Attorney  General  v.  May  owf  Liverpool;  l  Attorney  Gen- 
eral v.  Bailiffs  ofRetford?  There  is,  indeed,  an  express  provision  to 
this  effect  as  regards  the  members  of  the  highway  board  —  but  it  is 
expressly  limited  to  lawful  acts  of  the  board  —  in  s.  9,  subs.  6,  of  the 
Highway  Act,  25  &  26  Viet.  c.  61.  And  it  is  clear  that  this  is  so  when 
the  corporate  acts  are  such  as  the  corporate  body  is  qualified  to  perform, 
and  the  resolutions  and  acts  of  the  members  are  only  introductory  to 
the  corporate  body  acting  in  the  matter.  But  it  is  equally  clear  that 
when  t.hp  q.gtg_arp  »nch  aq^he^wrporajejKMljL4e-ftefe43^_law  qualified  to 

~ 


does  _not  prevent,  it  frq]nJbeTn^Jhe_act_of  those  who  cause  it  to  be  done. 
It  seems  plain  that  in  such  a_£ase  the  individuals  and  not  the  corpora- 
tion really  do  the  act,  .and  no  authority  is  needed  for  that  conclusion. 
Andui  this  case,  unless  the  letter  of  the  30th  November  prevents  it 
from  being  the  act  of  the  individual,  it  certainly  was  so  in  point  of  fact, 
for  the  defendant  Wickett  swears,  in  answer  to  the  interrogatories, 
that  he  removed  the  locks  by  the  direction  of  the  highway  board  given 
at  the  meeting,  that  is,  of  the  29th  of  November.  The  cases  of  Taylor 
v.  Dulwich  Hospital,*  and  Beg.  v.  Watson  f  may,  however,  be  referred 
to  in  support  of  the  proposition  that  the  individuals  really  do  the  act  ; 
and  in  the  case  of  Poulton  v.  London  &  South  Western  Ry.  Co., 
and  particularly  in  the  judgment  of  Blackburn,  J.,6  the  difference  is 
clearly  pointed  out  between  acts  which  are  properly  corporate  acts  and 
acts  which  are  not,  as  affecting  the  liability  of  the  corporation. 

The  question  in  the  present  case,  therefore,  is,  whether  the  act  of 
causing  the  locks  to  be  removed  is  one  of  those  acts  for  which  the  cor- 
porate body  is  constituted  or  not.  It  appears  to  us  that  it  is  not  one 
of  those  acts, 

The  effect  of  holding  that;  such  a  body  as  the  highway  board  were 
in  their  corporate  capacity  to  commit  such  an  act  of  trespass 


as  the  one  complained  of  in  this  case,  would  be  that,  whenever  the 
trespass  was  illegal  and  redress  was  had,  the  persons  who  had  really 
caused  the  trespass  would  not  be  responsible,  and  the  damages  would!  _ 
I5e_paid_put  of  fnn^a  ™h;"h  ought  +n  ^Q  applied  in  Tn^jptaining  the 
roads,  and  the  persons  eventually  responsible  would  be  the  ratepayers. 
and  among  them,  perhaps,  the  persons  entitled  to  redress,  and  to  whom 
the  damages  were  to  be  paid.  And  thus  the  members  of  the  highway 
board  would  acquire  a  power  to  divert  and  waste  the  funds  intrusted  to 
them  for  public  purposes  by  proceedings  which  might  originate  in  feel- 
ings which  it  would  be  most  inconvenient  to  inquire  into. 

»  1  My.  &  Cr.  171.  2  3  My.  &  Cr.  484. 

3  1  P.  Wms.  655.  *  2  T.  R.  199. 

6  Law  Rep.  2  Q.  B.  at  p.  538. 


MILL  V.   HAWKEK.  597 

KELLY,  C.  B. 

Two  questions  arise  upon  this  case.  The  first  is,  whether  this  action 
is  maintainable,  not  against  the  highway  board  in  their  corporate  char- 
acter, but  against  the  individual  mgjnJLtexs  of  the  board  who  were  pres- 
ent at  the  meeting,  and  one  of  whom  moved  and  another  seconded  the 
resolution  ;  andj  am  of  opinion  jhaXJt  is  not.  The  making  of  the 
resolution  was  a  corporate  act  done  at  a  corporate  meeting  convened 
and  held  in  strict  conformity  to  the  Act  of  Parliament.  No  one  mem- 
ber of  the  board  assumed  to  exercise  or  did  exercise  any  personal 
authority  or  power.  The  resolution  was  the  act  of  the  corporation  and 
consisted  of  the  minute  made  at  the  meeting  according  to  the  Act  of 
Parliament,  signed  by  the  chairman,  and  by  the  statute  receivable  in 
evidence  without  further  proof.  I  conceive  it  to  be  settled  law  that  no 
nrtinnjirn  ippinnti  thr  inrlirirlnnl  m(imhrr3  of  a  corporation  for  a  cor- 
by  t.hp  «v)rporation  in  its  corporate  capacity,  unless  the 


nnt.  he  "rqpir'.ioiialp  flone  bv  the  individuals  charged,,  and  the  corporate" 
name  be  used  as  a  mere  colour  for  the  malicious  act,  or  unless  the~act 
isjiltraTvires,  and  is  not,  and  cannot  be  in  contemplation  of  law,  a  cor^ 
porate  act  at  all. 

In  Harman  v.  Tappenden1  the  Free  Fishermen  of  Faversham,  a 
corporate  bodjr,  at  a  corporate  meeting  made  an  order  of  amotion  or 
disfranchiseraent  against  the  plaintiff,  a  free  fisherman  and  a  member 
of  the  corporation,  upon  which  the  plaintiff  brought  his  action  for  dam- 
ages against  the  six  individual  corporators  who  had  made  the  order, 
and  it  was  objected  "  That  no  action  would  lie  to  recover  damages 
against  individuals  for  acts  done  in  their  corporate  capacity,  and  that 
non  constat,  but  that  all  or  some  of  the  defendants  might  have  voted 
against  the  order  of  amotion."  When  the  case  came  before  the  Court 
upon  a  motion  to  enter  a  nonsuit  and  in  arrest  of  judgment,  the  Court 
intimated  very  strong  doubts  on  this  ground  how  far  the  defendants 
were  answerable  in  damages  in  their  private  character  for  acts  done  by 
them  in  their  corporate  capacity.  And  Lord  Keuyon,  C.  J.,  said  that 
he  entertained  considerable  doubt,  notwithstanding  what  was  said 
in  Rich  v.  Pilkington?  and  Rex  v.  Mayor  of  Rippon*  and  added, 
"  that  he  had  many  years  ago  moved  for  a  mandamus  to  the  master 
and  fellows  of  Wadham  College  to  compel  them  to  put  the  college  seal 
to  a  return  which  they  were  required  to  make,  and  to  which  Mr. 
Windham,  the  master,  had  great  objection  with  respect  to  the  facts 
agreed  upon  by  a  majority  to  be  returned,  conceiving  that  he  should 
thereby  make  himself  individually  liable  to  the  consequences,  but  Lord 
Mansfield  overcame  his  difficult}7  by  an  explicit  declaration  that  what 
he  thus  did  in  his  corporate  capacit}'  could  not  hurt  him  in  his  indivi- 
dual character."  Lawrence,  J.,  expressed  the  same  doubt,  and,  finally, 
upon  cause  being  shewn,  the  Court  held  that  without  proof  of  malice 
the  action  was  not  maintainable,  and  the  rule  was  discharged  :  see  also 

i  1  East,  555.  2  Carth.  171.  8  1  Ld.  Rayrn.  563. 


598  MILL  V.   HAWKER. 

1  Ventris,  351,  and  Hex  v.  Windham,1  the  case  alluded  to  by  Lord 
Kervyon.  It  is  true  that  where  individuals  make  a  pretended  corporate 
act  a  cloak  for  a  malicious  libel  or  a  libel  on  the  administration  of  jus- 
tice, the  Court  will  grant  a  criminal  information  as  in  Rex  v.  Watson.2 
Bnt_nn_JmlJYiflnnl  Corporator  fo  nn  mnrg  Ii«.h1p  fr>r  ajgi^r^mmUted  in 

fnr   n   ^ti  fine   K    t)v»  PororaBft:     In 


either  case  I  am  of  opinion  that  the  action  must  be  brought  against  the 
corporation  in  its  corporate  character  and  not  against  an  individual 
member,  who,  like  Mr.  Windham  in  the  Wadham  College  Case,  may 
have  been  opposed  to  the  act  in  respect  of  which  the  action  may  be 
brought.  It  was,  indeed,  once  imagined,  though  on  very  technical 
grounds,  that  trespass  would  not  lie  against  a  corporation,  and  it  is  so 
stated  in  Comyns'  Digest,  Franchises,  F.  (19.).  But,  besides  that 
many  authorities  are  to  be  found  in  the  year  books  to  the  contrary,  the 
law  is  now  well  settled  that  upon  any  tortious  act  committed  by  a  cor- 
poration, or  under  its  authority,  or  by  its  direction,  trover  or  trespass 
is  maintainable. 

r  I  cannot  doubt,  therefore,  that  this  action  ought  to  have  been  brought 
I  against  the  board,  and  all  these  decisions  are  uniform  to  shew  that  it 
\  would  have  been  maintainable.  The  mischief  and  inconvenience  that 
\  would  result  if  the  contrary  were  held  to  be  law  is  great  and  obvious. 

If  Judgment  be  recovered  against  these  defendants  execution  might, 
^jgsue^  foE-thc  whole  amonnt^ofjiamages  and  costs~]againsr^nv  one 
among  them,  and  he^wquld  have  no  remedyjor  contribution  against 
thfi  rpflfij  nw  as  **  gii^nyTspfirn,  iipv>n  t.hp  t'acts"Ql_the  case,  forjndetq- 

And  it  is  at  least  doubtful  whether  the 

)oard  would  have  a  legal  right  to  indemnify  him  out  of  the  funds  which 
come  to  their  hands  under  the  Act  of  Parliament.  On  the  other  hand, 
if  the  action  had  been  brought  against  the  board,  and  judgment  ob- 
tained against  them,  they  may  pay  the  damages  and  costs  out  of  the 
funds  which  they  are  enabled  to  provide  for  the  various  purposes  of  the 
Act  by  ss.  20-27,  and  others. 

It  was  argued  that  no  action  could  be  maintained  against  the  board 
on  the  ground  that  the  resolution  and  the  order  to  the  surveyor  were 
ultra  vires.  But  I  apprehend  that  this  is  a  misapplication  of  the  term 
ultra  vires.  If  the  board,  by  resolution  or  otherwise,  had  accepted  a  bill 
of  exchange  directing  their  clerk  or  other  officer  to  write  their  corporate 
name  or  title  across  a  bill  drawn  upon  them  for  a  debt,  this  would  have 
been  ultra  vires,  and  no  holder  of  the  acceptance  could  have  recovered 
the  amount  against  them.  It  would  have  been  void  upon  the  face  of 
it,  and  it  is  immaterial  to  consider  whether  the  individuals  who  had 
written  or  authorized  the  acceptance  would  have  been  liable  to  any, 
and,  if  any,  to  what  action  at  the  suit  of  a  holder  for  value.  But  it  is 
otherwise  with  an  act  merely  unlawful  or  unauthorized,  as  a  trespass 

1  1  Cowp.  377.  2  2  T.  R.  199. 


MILL   V.   HAWKEK.  599 

or  the  conversion  of  a  chattel.  If  such  an  act  is  to  be  deemed  ultra 
vires,  and  th°rgf?r»  no  art-'^"  wnnlH  lin  nrrningt  fho  ^vpArate_hodji_bj: 
wTTomTt  had  been  authorized,  it -is  Haar  that  ^Corporation  would  npt 
beHable  for  any  tort  at  all  committed  or  authorized  by  them,  and  the 
decisions  above  cited  would  be  contrary^to  lajg-  Two  cases  have, 
however,  been  cited  which  seem  to  bear  upon  the  question  against  the 
defendants.  But  the  first,  Poulton  v.  London  and  South  Western 
Ry.  Co.,1  merely  shews  that  there  is  no  implied  authority  by  a  railwa}' 
compan}'  to  their  servants  to  do  an  illegal  act.  Here  no  question  arises 
upon  an  implied  authority,  for  this  board  have  expressly  authorized 
and  commanded  the  survej^or  to  do  the  act  complained  of.  On  the 
other  hand,  in  the  Dulwich  College  case,  Tat/lor  v.  Duhcich  Hospital? 
the  constitution  of  the  college  requiring  that  leases  granted  should  be 
at  a  rack  rent,  the  contract  for  a  lease  not  at  a  rack  rent  was  ultra  vires 
and  not  binding  on  the  corporate  body,  and  so  if  the  plaintiff  had  been 
entitled  to  the  relief  prayed,  it  would  have  been  granted  against  the 
individuals  who  had  executed  an  instrument  in  the  form  of  a  corporate 
act,  but  which,  being  ultra  vires,  was  absolutely  void. 

[The  learned  Judge  held,  that  the  surveyor  was  not  liable.] 

Mule  absolute. 

[The  defendants  appealed  to  the  Exchequer  Chamber  from  the  above 
judgment  rendered  by  the  Court  of  Exchequer.  The  judges  in  the 
Exchequer  Chamber  were  all  of  opinion  that  the  surveyor  was  liable  ; 
and  that,  as  far  as  regards  the  surveyor,  the  nonsuit  at  the  trial  was 
wrong.  And  they  held,  that,  inasmuch  as  it  was  one  nonsuit,  where 
the  parties  were  sued  together  in  a  single  action,  the  decision  that  the 
nonsuit  was  improper  as  regards  one,  sets  it  aside  as  regards  all,  and 
that  consequently  the  judgment  of  the  Court  of  Exchequer,  making 
absolute  the  rule  for  a  new  trial,  must  be  affirmed.  L.  R.  10  Exch. 
92.  As  to  the  liabilit}-  of  the  members  of  the  board,  no  decision  was 
given.  Upon  that  branch  of  the  case,  some  of  the  learned  judges  ex- 
pressed themselves  as  follows :] 

BLACKBURX,  J.  Now,  with  regard  to  the  other  question  which  has 
been  raised  and  discussed,  as  to  whether  the  corporators  were  liable,  it 
is  one  of  considerable  importance  and  great  difficult}*.  If  it  were 
necessary  to  decide  that  question,  we  should  require  time  for  consider- 
ation, and  possibly,  when  we  had  considered  it,  our  decision  would  not 
be  unanimous.  Our  decision  would  be  of  no  assistance  in  sending  the 
case  down  to  trial,  and  would  perhaps  be  an  embarrassment  to  the 
learned  judge  who  may  have  to  tr}r  it.  We  think  it  better,  therefore, 
to  leave  the  decision  of  the  Court  of  Exchequer  upon  that  point  as  it 
is.  We  leave  it  with  the  authority  it  had  before,  no  better  and  no 
worse.  On  the  new  trial  the  facts  will  be  ascertained,  and  the  point 
reserved  in  such  a  manner  that  the  Court  before  which  it  comes  will  be 

i  Law  Rep.  2  Q.  B.  534.  2  1  P.  Wms.  655. 


600  SANDFOKD   V.   McARTHUR. 

much  better  able  to  deal  with  it  than  they  would  be  if  they  were  to 
consider  it  now.  (L.  R.  10  Exch.  pp.  92,  93.) 

DENMAN,  J.  With  regard  to  the  question  as  to  the  corporators  being 
personally  responsible,  I  think  that  is  a  matter  of  great  difficulty,  and 
that  it  would  be  better  not  to  send  down  the  case  with  a  divided  opin- 
ion, or,  by  taking  time  to  consider,  to  prevent  the  case  from  being 
tried  at  the  next  assizes.  (L.  R.  10  Exch.  pp.  98,  99.) 

ARCHIBALD,  J.  I  entirely  agree  as  to  the  inexpediency  of  taking 
time  to  consider  the  question  as  to  the  personal  liability  of  the  corpora- 
tors, as  to  which  there  may  probably  be  some  difference  of  opinion. 
(L.  R.  10  Exch.  p.  99.) 


SANDFORD  v.   McARTHUR. 

1857.     18  B.  Monroe  (Kentucky),  411  * 

THIS  suit  was  brought  by  Sandford,  who  held  a  large  amount  in  notes 
purporting  to  be  notes  of  the  Newport  safety  fund  bank  of  Kentucky, 
all  of  less  denomination  than  five  dollars,  against  McArthur,  who  was, 
during  its  existence,  the  President  of  the  bank.  A  judgment  was 
asked  against  McArthur  individually  for  the  amount  of  said  notes. 

As  appears  b}7  the  charter  of  the  bank,  as  originally  passed  by  the 
legislature,  all  notes  to  be  issued  thereby  were  to  be  printed  and 
engraved  by  the  auditor  of  the  state,  and  to  be  secured  by  the  deposit 
of  stocks  or  mortgages  on  real  estate.  Said  notes  were  to  be  num- 
bered and  registered  by  the  auditor,  and  countersigned  by  him  before 
the}7  were  delivered  to  the  president  of  the  bank.  By  an  amendment 
to  the  charter  notes  of  a  less  denomination  than  five  dollars  were 
authorized  to  be  issued  without  being  countersigned  b}7  the  auditor ; 
this  alone  was  dispensed  with,  all  other  provisions  of  the  original 
charter  remained  unchanged  by  the  amendment.  Sandford,  in  his  peti- 
tion, charges  that  under  color  of  this  amendment  of  the  charter  the 
president,  McArthur,  confederated  with  others,  some  of  whom  were 
directors,  and  caused  to  be  issued  large  amounts  of  notes  of  various 
denominations  under  five  dollars,  which  were  not  received  from  the 
auditor,  nor  printed,  nor  engraved,  nor  numbered,  nor  registered,  by 
him,  and_for  the  .security  j&f^ which  nojstocks,  nor  bmids.  nor  mork 
gages_d£posited  with  the  auditor,  but  that  McArthur,  &c.,  caused  said 
notes  to  be  printed  and  engraved,  and  then  issued  as  the  notes  of  said 
bank,  well  knowing  at  the  same  time  that  such  an  issue  was  unauthor- 
ized, and  in  violation  of  the  charter,  and  that  this  act  was  a  fraud 
upon  the  persons  to  whom  said  notes  were  delivered,  and  of  all  others 
into  whose  hands  they  might  come.  It  is  alleged  that  the  said  notes 

1  Arguments  omitted.  —  ED. 


SANDFOED   V.   McARTHITR.  601 

were  made  payable  to  bearer,  and  on  their  face  contained  the  promise 
of  said  bank  to  pay  the  same.  They  were  received  and  passed  in  the 
community  as  legal  notes,  and  being  thus  put  upon  the  public  they 
ultimately  came,  for  a  valuable  consideration,  into  the  hands  of  the 
plaintiff. 

To  this  petition  the  defendant  demurred,  and  assigned  the  following 
as  causes  of  demurrer:  1.  That  the  court  had  no  jurisdiction  of  the 
case.  2.  That  there  was  a  deficit  of  parties  defendant.  3.  That  the 
petition  shows  no  cause  of  action.  The  court  overruled  the  demurrer 
as  to  the  first  and  second  grounds,  but  sustained  it  as  to  the  third,  and 
judgment  was  rendered  for  the  defendant. 

On  a  subsequent  day  of  the  term  the  judgment  was  set  aside,  and 
the  plaintiff  offered  an  amended  petition,  in  substance  averring  that 
the  notes  so  issued  by  the  defendant  purport  to  be  the  notes  of  said 
bank,  but  were  not  issued  by  the  said  bank,  and  were  not  the  bills  or 
notes  of  said  bank  ;  that  they  were  made  and  passed  by  said  defend- 
ant as  a  circulating  medium,  in  lieu  of  and  as  the  representative  of 
money  ;  but  were  not  the  notes  or  bills  of  any  legally  incorporated 
banking  institution. 

The  defendant  objected  to  the  filing  of  the  amendment.  The  court 
rejected  the  amendment,  and  rendered  judgment  in  bar  of  the  action. 
The  plaintiff  prayed  an  appeal. 

Stevenson  &  Eiiikead,  for  appellant. 

J.  JR.  Hallam,  and  Geo.  B.  Hodge,for  appellee. 

SIMPSON,  J.  It  is  not  alleged  in  these  cases  that  the  plaintiffs  them- 
selves have  had  any  dealings  with  the  defendants  or  that  they  received 
from  them  the  notes  which  they  hold,  or  that  they  were  deceived  with 
respect  to  the  value  of  these  notes  by  any  misrepresentations  or  con- 
cealment on  the  part  of  the  defendants.  Neither  do  they  allege  that 
they  received  them  in  consequence  of  any  inducements  held  out  by 
the  defendants,  or  any  promises  made  by  them  that  they  would  be  liable 
for  them.  They  jnay  be  regarded,  therefore,  as  having  received  tfllpm  ag 

the  notes  Of  tb^  pnrpnrn.t.inn,  whifih  they  purport?  rl  fn  hpi 


their  payment,  and  relying  upon  its  liability  for  the  amount  of  them. 

The  only  question,  therefore,  that  arises  upon  this  state  of  case  is, 
has  the  board  of  directors  made  themselves  personalty  liable  for  these 
notes  to  the  holders  thereof,  by  exceeding  the  authority  which  the 
charter  conferred  upon  them,  in  issuing  and  putting  them  into  circula- 
tion as  the  notes  of  the  corporation,  it  having  been  heretofore  decided 
by  this  court,  in  the  case  of  Watson  vs  The  Hank,  that  they  were 
issued  without  authority? 

The  Directors  are  the  agents  of  the  corporation,  and  derive  their 
powers  not  from  the  corporators  but  from  the  charter,  and  cannot  bind 
their  principal  beyond  it.  The  charter  did  not  authorize  them  to  issue 
the  notes  held  by  the  plaintiffs,  nor  is  the  corporation  bound  for  them  as 
its  notes,  although  we  suppose  that  it  is  liable  for  the  amount  of  them  so 
far  as  it  received,  and  used  any  of  the  benefits  or  profits  derived  from 


. 


602  SANDFORD   V.   MC  ARTHUR. 

them.     The  holders  may  have  a  right  to  look  to  the  general  assets  of 
the  corporation,  although  they  have  no  claim  upon  the  fund  set  apart 
for  the_j£tkiujpliuu  r>f  thoir   nntcn  which  worn  jssnprl  in  th^  rr^mw, 
prescribed  by  the  charter. 

It  is  a  general  principle,  that  where  a  person  undertakes  to  do  an 
act  as  an  agent  of  another,  and  exceeds  the  authority  delegated  to 
him,  he  will  be  personally  responsible  therefor  to  the  person  with  whom 
he  is  dealing ;  but  this  liability  is  founded  upon  the  supposition,  that 
I  the  want  of  authority  is  unknown  to  thp.  other  party. 

A  distinction  has  been  taken  between  acts  of  an  agent  for  his  prin- 
cipal in  common  cases,  and  similar  acts  done  by  the  servants  or  officers 
of  a  corporation.  In  the  first  case  it  is  said  the  extent  of  the  authority 
is  known  only  between  the  principal  and  agent,  whereas,  in  the  latter 
the  authority  is  created  by  statute,  to  which  all  may  have  access  who 
deal  with  the  officers.  (Salem  Sank  vs  Gloucester  Sank,  17  Mass. 
Rep.  29  ;  Angel  &  Ames  on  Corporations,  sec.  299.) 

According  to  this  doctrine  it  was  the  duty  of  those  dealing  with  the 
officers  of  the  corporation  to  know  the  extent  of  their  powers,  and  to 
know  whether  the  notes  held  by  the  plaintiffs  were  legally  or  illegally 
put  into  circulation.  If  they  received  them,  knowing  that  thej7  had 
been  issued  without  authority,  they  cannot  hold  the  officers  personally 
responsible  for  them,  inasmuch  as  the  liability  of  the  agent  is  founded 
upon  the  want  of  knowledge  by  the  other  party  that  he  has  exceeded 
his  authority.  The  notes  not  having  been  stamped  "secured  by  the 
pledge  of  state  bonds  and  real  estate,"  as  required  by  the  charter,  car- 
ried on  their  face  intrinsic  evidence  of  the  fact  that  they  had  not  been 
lawfully  issued,  evidence  which  was  visible  to  all  persons,  and  which 
all  persons  receiving  them  were  bound  to  notice. 

'  Is  the  position  correct,  that  it  is  the  duty  of  those  who  deal  with  the 
officers  of  a  bank  to  know  the  extent  of  the  power  conferred  upon 
them  by  the  charter  under  which  they  profess  to  act?  We  think  it  is 
as  a  general  proposition.  ^Although  such  corporations  are  private,  yet^ 
as  their  notes  are  intended  for  gp^prar  nirnniat.imn  or./)  tTTn  n»fn  v.y 
which  they  are  created  arp  maA*  pnV>iiV  qnfl  nrp  nf 


they  do  not  properly  fall  under  the  denomination  of  private 
but  must  be  classed  with  those  tbflf  *»•«>.  gpnpr^  me]  publicT  or  at  least 
they  should  be  considered  as  Quasi  public  acts.  The  public,  therefore, 
is  as  much  bound  to  take  notice  of  their  provisions  as  they  are  to 
know  the  provisions  of  any  of  the  statutes  passed  by  the  legislature. 

It'  is  a  general  rule  that  a  party  cannot  rely  upon  his  own  ignorance 
of  such  matters,  as  it  was  his  duty  to  know,  and  which  he  could  have 
known  by  the  use  of  reasonable  diligence.  If,  for  instance,  an  agent 
should  refer  the  party  with  whom  he  was  dealing  to  a  recorded  power 
of  attorney  as  showing  the  extent  of  his  authoritj*,  the  latter  could  not 
hold  the  former  liable  on  the  ground  that  he  had  exceeded  his  authority 
in  contracting  in  the  name  of  his  principal. 

Here  the  charter  containing  the  powers  under_wbich__tlie  officers 


SANDFOED   V.   MCAKTHUR.  603 


acted  was  published,  and  made^  .ipreasiblfi  to  all  persons.  Ignorance 
of  its  provisions  must,  according  to  well  settled  legal  principles,  be 
considered  willful  and  inexcusable.  Knowledge  of  them  discharges 
the  officers  from  all  liability  for  having  exceeded  their  authority,  and 
as  no  other  ground  of  liability  is  made  out  by  the  plaintiffs  their  action 
cannot  be  maintained  according  to  the  well  settled  principles  of  law  by 
which  such  cases  are  governed. 

It  might,  as  a  matter  of  public  policy,  be  right  to  hold  the  officers 
of  a  corporation  personally  responsible  whenever  they  transcended  the 
powers  conferred  upon  them  by  their  charter,  to  the  injury  of  the 
public.  But,  if  such  a  liability  be  proper,  it  should  be  imposed  by 
the  terms  of  the  charter,  or  by  some  general  statute  alike  applicable  to 
all  corporations. 

The  defendants  may  have  made  themselves  responsible  to  those  per- 
sons with  whom  they  had  immediate  dealings,  if  they  were  guilty  of  . 
any  fraudulent  misrepresentations  or  concealments,  but  not  being  liable 
on  the  ground  of  a  mere  excess  of  authority,  and  the  plaintiffs  not 
having  had  an}T  dealings  with  them,  have  not  made  out  any  valid  cause 
of  action  against  them. 

Wherefore,  the  judgments  are  affirmed. 


